Ergen says capital cost of Dish Wireless can’t be compared to incumbents

Dish Networks Chairman Charlie Ergen was asked on the company’s third quarter 2019 earnings call today whether he would spend any of his own money to “backstop” Dish’s wireless offering. Ergen said he couldn’t comment at this time for legal reasons, but he said, “I have liquidity.”

Ergen has previously said that he thinks it will cost about $10 billion to build out a new wireless network. Analyst Craig Moffett with Moffett Nathanson has scoffed at the $10 billion figure, pointing out that Verizon spends $15 billion per year just to maintain its existing network. 

In conjunction with its earnings today, Dish also announced a $1 billion rights offering. Presumably, this will be the first of many capital-raising initiatives necessary to fund the build-out of its 5G network. Dish also said that the total cost of wireless construction in progress was $189.9 million in its third quarter.

Ergen did point out that Dish’s new 5G network will be a greenfield network and should not be evaluated in the same way as an incumbent’s network. He said Dish’s network would cost less than other carriers’ networks because Dish plans to use next-gen technology, which relies much more on software than on expensive, proprietary hardware. “The cost structure goes down,” he said. “The vast majority of capex for the incumbents is not for 5G, it’s to maintain the legacy. We don’t have that cost going forward.”

Analyst Roger Entner, founder of Recon Analytics, pointed to Rakuten, which is building a new greenfield wireless network in Japan. Rakuten has said it can build its network at 40% less capex than traditional wireless networks. “By doing a virtualized network based on open RAN, he [Ergen] can realized massive 40-60% reductions, but not 100% reductions,” said Entner. “It’s not like a free network. You’re not repealing the laws of gravity.”
Entner also said that wireless networks can’t be looked at as a one-year expense. “Looking at a wireless network as a one-year expense is how Sprint got where it is. Nothing is a once and done.”

In addition to reporting its earnings today, Dish also announced it had hired two experienced wireless executives to help lead its Dish Wireless business. Marc Rouanne, who has served as president of mobile networks for Nokia, is taking the reins as Dish’s chief network officer overseeing the strategy and architecture of the network. And Stephen Bye, whose resume includes stints as president of C-Spire and CTO of Sprint, will lead the Dish Wireless enterprise development team.

RELATED: Dish hires 2 well-known wireless leaders: Rouanne and Bye

Wells Fargo analysts, led by Senior Analyst Jennifer Fritzsche, said these two hires add more credibility to the Dish Wireless story.

Requests for proposals

The Colorado-based company does seem to be taking concrete steps to advance its wireless ambitions. Last month Dish released an RFP for end-to-end deployment services vendors. It was the third RFP the company has issued for different elements of its planned nationwide 5G network. 

RELATED: Dish issues the third RFP for its 5G greenfield network

On today’s earnings call, Tom Cullen, Dish Networks’ EVP of corporate development, said the company has seen a “very healthy response rate from traditional and non-traditional vendors” for the RFPs. He said the company has received “dozens” of responses, “and we have been meeting with [vendors] pretty much non-stop” to isolate and refine the architecture the company wants to move forward with. “We’re encouraged with the responses even though we have yet to negotiate final agreements,” said Cullen.

Apparently, a deadline passed for T-Mobile to extend its merger agreement with Sprint, and analysts at LightShed Partners have said that Deutsche Telekom (DT) should renegotiate the terms of the $26.5 billion deal—given further erosion at Sprint and rising costs of the transaction. Ergen said today, “We’re not involved in any kind of re-negotiation between Sprint and T-Mobile. I have no inside information whether that’s actually happening.” 

Ergen did tout the new promises that T-Mobile made today. If the merger with Sprint goes through, T-Mobile promised it would introduce low-cost prepaid plans and give free broadband access to underserved households with school-age children. Specifically, T-Mobile pledged the combined company will offer two new low-cost prepaid plans, including access to 5G – the first costs $15 per month for 2 GB of data and the other is $25 per month for 5 GB.

RELATED: T-Mobile ponies up 5G commitments for low income families, first responders

“You’ve got to give the state attorneys general a lot of credit in incentivizing T-Mobile to take a look at low-income people not getting the best deals,” said Ergen, referring to the lawsuit filed by 15 state attorneys general to block the Sprint/T-Mobile deal. He added, “You have to give T-Mobile credit. It’s not going to be without pain for them to do what they announced today. That goes a long way for certain disadvantaged people.”

It might also cause some pain for Ergen and Dish Wireless to compete against a T-Mobile prepaid brand for $15 per month. “That scorches the earth for Dish,” said Entner. “It makes life very hard.”