Editor’s Corner—The unenviable economics of Dish’s NB-IoT plans

Mike Dano

Dish Network is in the midst of spending up to $1 billion by 2020 to build out an NB-IoT network for internet of things applications. But new details and pricing from T-Mobile open a window into just how small of an opportunity Dish appears to be chasing.

T-Mobile launched its own nationwide NB-IoT network this week. As T-Mobile’s Dave Mayo explained, the network currently covers 2.1 million square miles and 320 million POPs, and offers real-world download and upload speeds of around 15 Kbps.

And how much is T-Mobile charging for NB-IoT services? That would be $6 a year for up to 12 MB per connected device, which T-Mobile has said is roughly one-tenth the cost of Verizon’s Cat-M plans for IoT devices.

The low cost of IoT

“At just $6 per year, it is clear that the monetization capability of a network like this is very low … and that there is no conceivable economic model for an IoT-only network that doesn’t piggyback on the sunk costs of a network already built for more profitable uses,” noted MoffettNathanson analyst Craig Moffett in a recent note to investors.

Indeed, T-Mobile’s NB-IoT network sits alongside its existing LTE network, which currently services around 74 million customers. Thus, the operator’s foray into NB-IoT represents a decidedly ancillary business to T-Mobile’s main occupation selling smartphone subscriptions.

And therein lies the rub for Dish and its NB-IoT plans. Even if Dish is able to capture a million customers onto its NB-IoT network, based on T-Mobile’s pricing it might only expect revenues of around $6 million per year, creating a significant challenge for Dish to recoup that $1 billion network investment.

Further, Dish isn’t operating in a vacuum. It will face competition not only from T-Mobile—which already offers NB-IoT services—but also from Verizon, AT&T, Comcast, Senet and others, all of which are building their own slow-speed networks for IoT services.

“The very presence of a network like T-Mobile’s—which is now already in operation—is likely to materially reduce the attraction of such a network from Dish,” Moffett noted.

To be clear, it appears that Charlie Ergen—who stepped down from his role as Dish’s CEO in 2017 to focus on the company’s wireless network—is aware of the less-than-enticing economics involved in an NB-IoT offering. During Dish’s earnings conference call in May, Ergen sought to set modest expectations for the company’s initial efforts in the space: “You shouldn’t expect that we would make big profits on that on Day One,” he said at the time. “But what it does is it makes the foundation for where things go.”

Getting to 5G

Further, Ergen has made it clear that Dish’s NB-IoT network is just a steppingstone for the company to build a full-blown 5G network. In comments at the WIA’s recent Connect (X) trade show, he said the company may need $10 billion to build a 5G network that will support IoT applications like smart cities, autonomous cars, artificial intelligence and other high-tech services.

“We’re now going to spend at least $10 billion or more on a 5G network. We don’t have that kind of capital on our balance sheet today,” Ergen admitted. But he said that Dish plans to operate like a startup in the wireless industry, much like it did when it entered the satellite TV business several decades ago, in its drive to cash in on 5G.

Ergen’s 5G aspirations are only one part of the story, however. Dish is also facing the FCC’s spectrum build-out deadlines, limits designed by the agency to prevent companies from sitting on spectrum that could be put into use by someone else.

“At the very least, the untenable economics of a narrowband IoT-only network neatly underscore what was no doubt already obvious to the FCC and everyone else: Dish’s goal in building out their IoT network is in satisfying their FCC requirements, not in creating a viable business enterprise,” Moffett wrote.

And it appears that the FCC is running out of patience on that topic. Earlier this month, the agency’s wireless bureau fired a wide range of questions at Dish Network about the carrier’s wireless network build-out plans. Importantly, the FCC’s Donald Stockdale stated that “I am contacting you to request updates and more detailed information on your buildout plans for the 53 megahertz of low- and mid-band spectrum that is apparently lying fallow in these bands.”

Stockdale added that Dish told the FCC earlier this year that it had not met the applicable interim construction deadline for its AWS-4 licenses, its 700 MHz Lower E Block licenses or its H Block licenses. The implication, of course, is that the FCC is done waiting for Dish, and that the company must either build a viable business with its spectrum licenses or relinquish them back to the FCC, so that the agency can auction the spectrum to another company that can.

As Moffett noted, the emerging economics of NB-IoT, coupled with Dish’s position in the IoT industry, “can’t help Dish’s odds of gaining [FCC] approval for their plan.” —  Mike | @mikeddano

"Editor's Corners" are opinion columns written by a member of the Fierce editorial team. They are edited for balance and accuracy.