The Dish on Ergen’s 5G Masterstroke
It’s fair to say that most of the wireless industry guessed wrong on Charlie Ergen’s plans for 5G. That group includes your humble narrator. We had plenty of hints as to what was the truth — that Ergen was building the fourth largest wireless carrier in the United States with an independent 5G offering and the full support of carriers Sprint and T-Mobile, as well as the Federal Communications Commission (FCC) and the U.S. Department of Justice (DoJ).
“I’m not a gambler,” says Ergen, the enigmatic co-founder of the Dish/EchoStar empire. “When you gamble, that means that you don’t know the odds or that the odds are always against you.”
Back in May 2018, Ergen laid out his exact plans in front of hundreds of people gathered in a Charlotte Convention Center ballroom. “We’re one of the few companies that can think long-term, and so, we’re confident about 5G,” said Ergen, sitting five feet away from former FCC Commissioner Rob McDowell, and about 20 feet away from current FCC Chairman Ajit Pai. “We’re going to build a 5G network to support all of the future IoT (Internet-of Things) applications we’ve been talking about and it’s going to cost $10 billion or more.”
Many in the audience smiled while shaking their heads; their fingers tickling bright digital screens like spider legs. Probably thinking “He’s bluffing. It would be crazy to do this on his own.”
Ergen continued: "One of the things I think we're pretty good at is partnering with people who know more than we do. Many people in this room already know that we have signed some national lease agreements with tower companies. We’re now permitting and designing that RF network.”
As the audience thinks: “He’s looking for a buyer. Now, what’s for lunch?”
A little over a year later, Ergen revealed that there was no twist ending to his 5G blockbuster. He was doing exactly what he said he would do. And, he was crazy enough to do it on his own. Dish was entering the U.S. wireless market as a major nationwide facilities-based network competitor.
With the blessing of the DoJ and FCC, Dish committed to launch a 5G broadband network capable of serving 70 percent of the U.S. population by June 2023. To do so, it will adjust its spectrum licenses, and give Sprint approximately $5 billion to acquire its prepaid businesses and customers, including Boost Mobile and Virgin Mobile, 14 Megahertz (MHz) of Sprint’s nationwide 800 MHz spectrum. T-Mobile, looking to merge with Sprint, will give Dish access to its network for seven years, including the ability to serve DISH customers between T-Mobile’s nationwide network and Dish’s new independent 5G broadband network.
To get the DoJ’s blessing, Dish had to agree to some conditions on how it sells its 600 MHz spectrum, for which it holds 486 different licenses. According to the agreement, Dish can’t sell its 600 MHz spectrum for six years without approval from the FCC or DoJ. “Some of that [600 MHz] spectrum is fallow today, and we’ll likely lease some of that to the new T-Mobile network. T-Mobile took a very aggressive stance on that, so the DoJ is requiring both companies to use good faith efforts to lease capacity based on market needs. The elimination of the uncertainty at the FCC was also a big deal, in that we can enter the marketplace in the short period of time and start to gain return our investment.”
Despite the complex nature of the three-way trade, The Wall Street Journal reported that the three partners took three weeks to assemble the deal. For Ergen, however, the announcement was the culmination of more than 20 years of work and $21 billion in spectrum investments intended to transform Dish into a connectivity company. If all goes as planned, Dish — a legacy satellite company — will be credited with launching the United States’ first standalone 5G broadband network.
“We’re entering this market with just over nine million subscribers, so we’re not building the retail side of this business from scratch. We're also acquiring a very competitive seven-year Mobile Virtual Network Operator (MVNO) deal with T-Mobile. We get the Sprint spectrum and the provision on the new T-Mobile network, which obviously is going to become an even better network as they build out,” says Ergen. “More importantly, we get to build our own network out, which allows us to build on a market-by-market basis, which is materially different than we envisioned where we believed we had to build the whole network across the entire country at one time.”
In working with the FCC to acquire the proper licenses, Ergen explains that while Dish and the regulatory agency initially hit some bumps regarding where the operator would build, and the flexible use licenses of Narrowband (NB) IoT network to meet its build out requirements, the two parties are now more in alignment and bonded by a mission to see a real 5G mobile broadband network built and launched in the United States.
“I know where the FCC wants to go, where I want to go, and where the [Trump] administration and Congress wants to go with 5G,” says Ergen. As a result, our NB-IoT resources will be redeployed in the short-term for the 5G network. The MVNO deal with T-Mobile allows us to use their nationwide NB-IoT that’s already built out. So, there is no reason to duplicate that network, particularly with some non-standard frequencies. We still plan to spend about $10 billion to build our network and we’re still going to need help. But, our initial costs will actually be less than we had envisioned short-term. As a result, our OpEx should be less than we had ultimately envisioned.”
By “needed help,” Ergen explains that he will be looking for partners to provide backhaul, cell towers, mobile edge computing, hardware, software, distribution, and marketing. He’ll also need more money — and we’ll get to that in a moment.
Why 5G?
5G isn’t just a faster Wi-Fi. It’s a bunch of different communications technologies working together in a connected “network of networks.” Consumers, businesses, and governments rely on more and more data each day, instantly, in order to live and work. 5G’s increased speed and performance make the acquisition and processing of this data acquisition more seamless, subconscious, and easier. It turns data into a readily available tool instead of something you need to search for, translate, compile in a spread sheet, and then communicate in a process that normally takes days or even weeks.
5G accelerates problem-solving. If you’re in healthcare, government, or public safety, accelerated problem-solving can save literally save lives.
“We still have room for where 5G really needs to go,” says Ergen. “Whether it’s precision agriculture or healthcare, robotics or smart cities or smart grid, or Blockchain, Artificial Intelligence (AI), autonomous vehicles, all those things still need a network.”
The 5G network will not be exclusive to one connectivity pipeline. The “always-on” functionality of 5G applications requires an eclectic mix of cellular, satellite, fiber, small cell antennas, microwave, modems, and processors, all weaved together in a complex, indoor and outdoor network infrastructure, which changes depending on the environment and location.
Ergen says Dish’s enormous bandwidth resources and new partnerships put it in a very good position to build both a 5G network and consumer business. Consumers may not be clear about what 5G does beyond supercharge their smartphones, but they are certainly aware that 5G is here. If you’re under the age of 50, your Twitter, Facebook, LinkedIn, and other social media feeds have been garnished by at least one 5G advertisement from Sprint, Qualcomm, Intel, AT&T, Samsung, T-Mobile, Verizon, or any of the major players in this space. If you’re under the age of 35, you’ve received at least one of these ads every day.
Dish wants to be able to serve 120 million consumers on its wireless network, and Ergen doesn’t care who believes or doesn’t believe in the possibility. “We’ll enter the market with a virtualized network architecture, which is completely different than the incumbent legacy networks. We’ll slice our network in any number of ways. One of the big slices of our network will be our own retail business to consumers to compete against the incumbents,” Ergen says. “When you look at our wireless portfolio, you’ll see that we have well over 100 MHz of spectrum that we’re able to utilize. We actually have more downlink, low- and mid-band spectrum than Verizon, which, for example has currently over 120 million customers on their network. We can compete with Verizon in a 5G virtualized architecture.”
Ergen isn’t the only person who believes in Dish’s competitive strength. One of his key partners, T-Mobile CEO John Legere, seconded this opinion during its 2019 second-quarter earnings call, shortly after the announcement was made.
“With its acquisition of Boost Mobile, and the mobile virtual network operator (MVNO) agreement we put in place … Dish has a real significant opportunity to be a very credible disruptive fourth wireless carrier, and that certainly is something that I’m sure AT&T and Verizon should keep an eye on,” Legere said. “We are going to keep Sprint’s entire 2.5 gigahertz and PCS spectrum, which is so important for fully realizing the 5G efficiencies promised by the merger. Dish will also have an option to take on leases for certain cell sites and retail locations that are decommissioned by the new T-Mobile, and both parties agreed to discuss how we would get access to some or all of their 600-spectrum to use on our T-Mobile network.”
New Street Research Analyst Jonathan Chaplin agrees that Dish’s network-building costs could be lower than competitors because, unlike competitors, it is only building one network. “This single network will be built from the beginning with 5G, the new wireless standard just beginning to roll out,” says Chaplin. “This means Dish’s network will be virtual and can save money on the costs of maintaining physical wireless towers. Ultimately, Dish’s cost per unit of data would be 75 percent lower than Verizon’s and 55 percent lower than AT&T and T-Mobile’s.”
Dish also has its detractors. Most notably MoffettNathanson analyst Craig Moffett, whose assessment weighs Dish’s shrinking broadcast businesses more heavily than its available supply of spectrum assets. “The idea that Dish will be able or willing to build its own effective wireless business will require many billions of dollars to get off the ground and even more to maintain,” Moffett says, referring to Verizon’s $15 billion in annual maintenance expenses for its own network. “The idea that Dish might spend $10 billion, which is their own estimate from previous conference calls, and then somehow be finished is not credible. We’ve warned for at least five years that if and when Dish’s spectrum holdings ever come to be viewed as an operating asset rather than an asset held for sale, well … look out below.”
This brings us back to money, and where Dish is going to find more of it to continue financing its 5G strategy. Ergen says that Dish has a lot more options than market analysts realize. “We obviously have cash on hand in the business and we’re obviously generating cash flow, which has been in excess of $1 billion for many years,” he says. “Our entry into marketplace with the Boost Mobile acquisition will be a positive from a cash flow perspective. There are several opportunities open to us in the marketplace, and I certainly am willing to put more money in this company if that’s what it takes.”
As long as he remains at the helm of Dish, the company will remain determined to build a 5G network, Ergen explains. “It’s really hard for people who haven't studied the wireless business on the inside like we have to understand what 5G can do. You read about 5G and everything you get is what incumbents say about 5G. But the reality is that 5G can do so much more and all the incumbents have built networks that were primarily designed for voice, and were built out in the 1980s. This is 2019. We don't want yesterday's network. Today’s equipment is off-the-shelf and interchangeable, and the majority of today’s networks are running on software, which allows you to do so many more things at lower cost. I’m probably bad at analogies here, but you can imagine the incumbents are building internal combustion engine cars and we’re building electric cars at half the cost, that you don't have to plug in to charge.”
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