DISH Network Corp. (DISH) Q4 2020 Earnings Call Transcript

DISH Network Corp. (NASDAQ: DISH) Q4 2020 earnings call dated Feb. 22, 2021

Corporate Participants:

Timothy A. Messner — Executive Vice President and General Counsel

W. Erik Carlson — President and Chief Executive Officer

Paul W. Orban — Executive Vice President and Chief Financial Officer

Charlie Ergen — Co-founder and Chairman of the Board

Tom Cullen — Executive Vice President, Corporate Development

Marc Rouanne — Executive Vice President, Chief Network Officer

John Swieringa — Executive Vice President and Group President, Retail Wireless and DISH Chief Operating Officer

Analysts:

Michael Rollins — Citigroup — Analyst

John Hodulik — UBS — Analyst

Craig Moffett — MoffettNathanson — Analyst

Philip Cusick — J.P. Morgan — Analyst

Walter Piecyk — LightShed Partners — Analyst

Jonathan Chaplin — New Street Research — Analyst

Kutgun Maral — RBC Capital Markets — Analyst

Jonathan Atkin — RBC Capital Markets — Analyst

Doug Mitchelson — Credit Suisse — Analyst

Scott Moritz — Bloomberg — Analyst

Amy Maclean — Cablefax — Analyst

Presentation:

Operator

Good day, and welcome to the DISH Network Corporation Q4 and Year End 2020 Earnings Conference Call. [Operator Instructions]. And at this time, I’d like to turn the conference over to Mr. Tim Messner. Please go ahead sir.

Timothy A. Messner — Executive Vice President and General Counsel

Thanks and good morning everyone. We are joined on the call today by Charlie Ergen, our Chairman; Erik Carlson, our CEO; Paul Orban, our CFO, Tom Cullen, EVP of Corporate Development; Marc Rouanne, our Chief Network Officer, and John Swieringa, EVP and Head of our Retail Wireless Business. We have some opening remarks, but first, I’m going to run through our safe harbors.

Statements we make during this call that are not statements of historical fact, constitute forward-looking statements that are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from historical results and/or forecasts. We assume no responsibility for updating forward-looking statements. For more information, please refer to the risks and other factors discussed in our SEC filings. We filed an application to potentially participate as a bidder for Spectrum and FCC Auction 107. Due to the FCC’s anti-collusion rules, we will not be answering any questions on that auction during today’s call.

That’s it from me. I’d like to turn it over to our CEO, Erik Carlson.

W. Erik Carlson — President and Chief Executive Officer

Hey, thank you, Tim, and welcome everyone. I hope you’re all doing well. We appreciate you being with us today, Paul and I are going to keep our comments brief and leave plenty of time for your questions.

You know this year has been a trying year for everyone in the face of the pandemic, and I’m proud of how the DISH team has responded and turned obstacles into opportunities, and also proud of how we’ve kept the safety of our team, our customers and our communities we serve top of mind, as we execute against our goals throughout the year.

We’ve accomplished a lot in 2020 and we’ve entered the retail wireless business with the acquisition of Boost Mobile, and we partner with Tucows, to utilize their mobile services solutions and we acquired the Ting Mobile subscriber base. Now over the past six months we’ve worked to implement the same discipline we have on the Pay TV side of the business to our retail wireless business. We’ve introduced new plans, offers, shed unprofitable customers and have been making plans to grow the business in 2021.

In addition, we made great strides on building the nation’s first cloud native, open-RAN based 5G broadband network. In 2020, we signed significant contracts with software partners, fiber providers, equipment manufacturers and tower companies. We’ve charted a course for a great 2021 and we look forward to sharing updates throughout the year on progress on our network. We also had a solid year in Pay TV despite the headwinds presented by the pandemic. This was driven by our continued discipline and better execution in both DISH TV and SLING TV.

We’re focused on providing products and services with the best technology, outstanding customer service and a great value. We strive to offer our customers with a better price to value relationships in those available from other Pay TV subscription providers. And through our efforts, we’re recognized by our customers for the third year in a row as being number one in customer satisfaction with J.D. Power in 2020. We reported strong revenue numbers for the year and brought in more than $3 billion in OIBDA. And we’ve increased our revenue more than $2.5 billion from 2019 and our net income by nearly $400 million.

With that, I’d like to highlight a few items across several key lines of business for the fourth quarter. In the fourth quarter, we continue to advance our wireless efforts. Retail wireless net subscribers decreased by approximately 363,000 for the fourth quarter, largely due to our ongoing efforts to integrate our retail wireless operations, shed unprofitable customers and make operational changes to enhance profitability.

As I mentioned last quarter, our profitability is determined in part by what we pay to access the network as an MVNO. As we rollout our own network, we’ll begin to benefit from owner economics. That’s going to drive profitability and will allow us to be more disruptive and drive better competition in the retail wireless space.

In addition, we made great strides in Q4 with our wireless network efforts. Since our last call, we’ve enlisted fiber providers like Everstream, Zayo, Crown, Segra and Uniti for front-haul and backhaul network support. We reached an agreement with Crown Castle for wireless towers and just last month we signed a similar agreement with Vertical Bridge.

We’ve announced an agreement with Aviat for 5G Microwave Wireless Transport services and signed a deal with Mavenir for cloud-based messaging and Qualcomm to utilize our 5G RAN platforms. We’ve also completed our first 5G validation in December. 2021 is going to be a landmark year for us in wireless and Charlie, Tom and Marc are here with us today and are available to talk more in depth about our wireless progress in a few minutes.

With regard to the quarter, DISH TV performed well, given the current environment with gross activations of nearly 235,000. They’re down year-over-year primarily due to COVID and our approach to it. And as I stated before, the crisis has impacted our customers’ willingness to respond to some marketing tactics like opening direct mail or event based sales and in some cases, allowing technicians to perform services in their home.

As a result, we reduced our marketing expenditures and our gross new TV subscribers have decreased. However, our DISH TV strategy has been anchored in acquiring and retaining long-term profitable customers. We’ve been focused on a more rural and higher credit quality customer base and we remain embedded to that path. In the quarter, we saw DISH TV net subscriber loss of 149,000. Our losses are primarily the result of a lower gross new DISH TV subscriber activations, partially offset by lower DISH TV churn rate. Paul is going to have a few — a bit more detail on that in a moment.

Turning to Sling TV. In the quarter, we gained approximately 16,000 subscribers, and while we still have considerable room to grow, we’re encouraged that we added subs in the back half of the year compared to the first half of the year. This is primarily due to the return of sports and it was also helped by the improvements we made to the platform.

We launched SLING Watch Party to enhance the collaborative viewing experience, added new programming like the BIG10 and increased our on-demand library to over 150,000 titles and most recently we added 50 hours of free DVR storage. With that said, we continue to focus on acquiring and retaining profitable customers and delivering a great experience for both DISH TV and SLING TV. 2021 is going to be an exciting and transformative year for many on many fronts, and we’ve got a lot of work to do, but we’ve got to focus on results to realize our vision.

With that, I’m going to turn it over to Paul for a little commentary on the numbers.

Paul W. Orban — Executive Vice President and Chief Financial Officer

Thank you, Erik. I have some brief remarks on the quarter before we open it up for questions. As a reminder, we made changes to our financial reporting in the third quarter. We now disclose operating results for both our Pay TV and wireless segments. In addition, we report results for our two wireless business units: Retail wireless and; 5G network deployment. Since we now report segment operating results, we are disclosing segment OIBDA as a measure of profitability for each segment.

Erik addressed the overall subscriber trends, but I’ll add a little color on our commercial subscribers for DISH TV. The COVID pandemic has significantly impacted our commercial subscribers. As discussed in previous quarters, 250,000 of these accounts were put on pause and/or received temporary rate relief. They were removed from our Q1 ending DISH TV subscriber count. During 2020, 80,000 of those subscribers restored service or had temporary rate relief end. These subscribers came back with minimal or no cost and were added to our ending subscriber count without being counted as a gross activation.

Of the remaining commercial accounts, 69,000 of these accounts disconnected during the year. We are hopeful the remaining 100,000 commercial accounts will restore service in the coming quarters, however, we cannot be certain of this. Companies in the hospitality and the airline industries continue to evaluate the amenities provided to their customers and that includes Pay TV.

Turning to the financials. In the fourth quarter, compared to last year, our consolidated revenue and OIBDA are both up significantly. Revenue increased due to the Boost acquisition. The OIBDA increase was driven by Pay TV generating over $1 billion and retail wireless generated $188 million during the quarter.

Let’s dig into the details of each segment. Our Pay TV revenue in the fourth quarter increased due to higher ARPU partially offset by a lower subscriber base. The increase in Pay TV ARPU was mainly driven by price increases for both DISH and SLING. Our subscriber margins for the quarter were positively impacted by the ARPU increases just discussed and our cost-cutting initiatives related to COVID.

SG&A expenses for the fourth quarter decreased compared to last year as a result of fewer subscriber additions and our cost cutting initiatives related to COVID. We settled our telemarketing litigation for $210 million which was $70 million less than what we had accrued, benefiting SG&A expenses in the quarter. DISH TV SAC per activation decreased slightly from $850 last year to $842 largely due to lower equipment cost per activation.

Now, let’s turn to our retail wireless business unit. Service revenue was almost $1.1 billion, down slightly from Q3 and OIBDA was $188 million for the quarter. Consistent with DISH and SLING, we are focusing on acquiring long-term profitable retail wireless subscribers. We are currently in a process of making changes to our marketing, sales and operations to further enhance our profitability given our MVNO economics.

And lastly, let’s look at our 5G network deployment group. We invested over $50 million in opex and capex during the fourth quarter. We expect capex to increase substantially throughout 2021 as we ramp up our 5G network deployment. During Q4, we generated $357 million of free cash flow, and made the final payment of $730 million to the FCC for our licenses — for our licenses acquired in Auction 105.

Finally, in December, we issued $2 billion of our 0% convertible notes due in 2025. We ended the quarter with approximately $3.7 billion of cash and marketable securities. With that, I’m going to turn it over to Charlie for some comments.

Charlie Ergen — Co-founder and Chairman of the Board

Good morning, everyone. Normally, I don’t make comments and I’m certainly not one to look in the rear-view mirror. But I did want to point out something that I think sometimes gets lost in when you analyze DISH, and obviously, we don’t talk a lot. We don’t go to a lot of conferences and we’ve remained focused on really building our business. But 2020 was a transition year for us. It’s a very successful transition year for us. And it’s the third time that we’ve had a transition in my 40 years in business. And I’ve always felt that the transition year — the transition time is always the toughest. And if you can get through the transition, then you can really jump start, you can really grow your business in a dramatic way.

So in 1980 when we started the business, the transition really was to survive. Most companies go out of business, probably 90% of the companies go out of business, because they just don’t have a good idea, run out of funds. And for us, it was — it took us about three years to make the transition from a retail company to a distribution company and actually get past the survival stage.

Second transition was when — it took us over a decade, which was we realized that the technology — that there was a technology, experimental technology called DBS, and we were in the big dish business and that, that was going to transform big dishes into little dishes and so in 1995 with the launch of our first satellite, that year was a transition year for us because we had put all the pieces in place with spectrum, satellite construction, launch and digital technology to go compete with the cable industry.

And 2020 was over a decade long transition of accumulating spectrum and getting critical mass with spectrum to go and compete in the wireless world. And we finalized our long-term executive team, which took years to do. We were able to enter the retail market in wireless, in an unexpected way with the acquisition of Boost, and a seven-year MVNO term with T-Mobile who’s quietly or not so quietly building the — probably the finest network in the United States.

We purchased 14 megahertz of low band spectrum in 800. We purchased approximately 20 megahertz of CBRS spectrum nationwide, the only nationwide provider. And over six — around 600 megahertz of millimeter wave, all last year. We solidified key vendor relationships, who — and have a number of companies that are helping us on our quest to build the world’s best network. And we have over $4 billion of cash in our balance sheet.

So that all leads to the fact that as we enter 2021, we have everything that we need to build — to build those one of a kind 5G network. And now it’s — now, for us it’s execution. So once you get through the transition stage, you have to focus on, it’s all about execution. And there are certainly significant risks for us as we go execute. We have to deploy our network and then we’ve got to put it all together to work, to make it work.

And there certainly will be substantial risk, there certainly will be lots of problems, but we had the team and the focus to overcome that. And our Company has always been a Company that can execute. So I have high degree of confidence that we’re going to execute in 2021. That means that we’re going to — we’re going to build our first major cities by the end of third quarter and more to come. We’re going to round out our team. They’re really, really great engineers, wireless engine, where they want to come work for this Company, because we’re building something special.

And we’re going to continue with rounding out our vendor partners and making sure that we have — we still have cloud, we still have transport, we still have orchestration, just to name a few. So we’ll continue to do that. And at the end of the day, we’re going to have this really, really special 5G cloud native, Open-RAN, virtualized network that really doesn’t exist in the world today. So it’s not our first rodeo, it’s very similar to building the digital video when the world was analog. Wireless networks really haven’t been upgraded from an architecture point of view in the last 30 years.

And, we’re confident that with our focus, we’ll actually help the United States, actually start leading again in wireless. And hopefully, continue to bring — most of our partners are American companies, with American ingenuity and there is no reason that America can’t lead. As an example, nobody has a better cloud companies in the United States, nobody has a better — when you virtualize the network, you know what you do right, you do all the software not hardware nobody has better software than United States. And this is a Company that has two main operating systems in the world today in Apple’s iOS and Google’s Android in the handset side.

So there is no reason that this country can’t lead, and there’s no reason that DISH isn’t going to be a part of that and probably will be upfront in some of those things. The reason the transition is important is in 1995 when we went to the little DISH business, we had two other competitors, we had a cable company, and we had DirecTV. Today, we probably have over 20 competitors in that very same business. In fact, we compete with our very own suppliers. So that market is very competitive. You’ve obviously seen the trends in our industry in the last four or five years. We expect that those trends will probably continue. The world is becoming an a la carte world with vendors going directly to their customers.

But in the wireless world, we’re one of four competitors. So there’s three $200 billion companies that are out there and we’re entering their business with a better — with a better network to go compete. And it’s not just about competition for consumers and handsets, it’s about what a 5G network can do, which includes a lot more than just consumers.

So with that, we’ll open it up for questions.

Questions and Answers:

Operator

[Operator Instructions]. We’ll now take our first question from Michael Rollins at Citi. Please go ahead.

Michael Rollins — Citigroup — Analyst

Thanks, good morning. Couple of questions. First on the 5G side, I was curious if you could just provide some additional context of how you’re seeing the emerging addressable market in dollars for the business side of what you’re focused on versus the consumer wholesale side for the wireless business plan?

And secondly, on the SLING business, with the cord cutting trend in the industry, are you surprised not to see SLING grab more share of that video distribution market? And is there something that’s holding it back that could be unleashed over the next 12 months? Thanks.

Charlie Ergen — Co-founder and Chairman of the Board

Why don’t you start with SLING?

W. Erik Carlson — President and Chief Executive Officer

Yes. Thanks, Charlie. Michael, this is Erik. I’ll start with the SLING question and then I’ll turn it over to the team for the 5G question. You know, look cord cutting has accelerated, Charlie mentioned in his opening comments. I mean, we are now competing with some of our largest partners on the distribution side. We feel like SLING is well positioned, not only from a value perspective and maintaining kind of that lowest price point, but also from delivering a good customer experience and technology.

We have work to do on the latter too, which we’ve made good progress on the end of last year and we’ll continue to make progress on this year. But SLING is in an unique position based on our packages and services that we provide in order to be a very complementary service to some of your larger SVOD services, whether it’d be a Disney, Netflix, Peacock, etc.

So, I think that obviously we have work to do on the SLING side. I think customers as Charlie mentioned, there is a bit of an a la carte world happening. I think there’ll be some aggregation back. We’re well positioned to fulfill the unique proposition, providing a kind of a bundle of cable nets with quality SVOD services from some of the competitors out there. I think the other thing that we do very well is we’re giving customers choice, right, and — a choice in how they acquire the content that is important to them, most uniquely on the locals front, right?

And, if you look at expenses, retrans is obviously one of the expenses that’s going up at the highest rate, those local channels. And SLING is well positioned to provide services, whether it’d be an offer antenna, that’s integrated to one of our — one of our set-top boxes or a service like low cast or a service like CBS All Access, which will now become paramount. So our strategy there is to really partner and become complementary.

And with that, I think we can continue to make progress on the acquisition front.

Charlie Ergen — Co-founder and Chairman of the Board

Yeah, this is Charlie. I’ll answer the second part of your question. I just — one comment on SLING. I actually agree a little bit with the premise. We should have more market share there. We really were first to market. We stumbled a little bit with our — with just the quality of the user interface — user experience. And technically, as we — our network was the best to first, but we got — maybe got a little complacent, and it’s taken a while to upgrade it, but that’s all being done the first half of this year. So we’ll see how it goes. But it — we have room to improve, that’s for sure. And we should — we should have gotten more market share.

On the business side, we don’t have a dollar amount to give you today on where the business. But our network is designed, let’s talk about the three things that we do different from current networks. First of all, our network will be an O-RAN network. So it means that we separate the baseband and the radio. So it gives them a lot more flexibility in terms of mix and managing off the shelf parts and radios and lower cost and more flexibility, more American content and vendors. And not one company that controls this, and like current current networks have.

We’re virtual, we’re more virtual. We do a lot more of software than hardware. So it means a lot of the big boxes that use a lot of power those things becomes — those things become software. And we’re cloud native, which means our network runs in the cloud. Now why is that important? That’s important because we can use modern techniques like machine learning and artificial intelligence, so we can actually analyze our network real time, we can make our network better, but we can also, we also — it opens up our ability on an automated basis to what we call slice our network, so that we can open up our network to private networks and companies in what we call enterprise business. So they can have what looks like their own network.

And they control their own network and they get access to the data and the cloud where they can actually use that data to make a better product, a less expensive product and a safer product. And then it also marries obviously with private clouds, if they so choose to do that. So we’re changing, so I think a lot of analysts look at how many handsets you’re going to have, what your market share going to be in handsets and so forth and so on. But your question is well taken in the sense that a part of our business will be the enterprise business, that is a fairly nascent business today, and will be on the leading edge of that as a growth.

Michael Rollins — Citigroup — Analyst

Thank you.

Operator

Right. We’ll now take our next question from John Hodulik at UBS. Please go ahead.

John Hodulik — UBS — Analyst

Great. Thanks. Again, maybe for Charlie. Just any milestones and metrics that investors should look at this year to — as evident that the strategy is on plan? And maybe along with that, how many cities are you targeting at this point for year-end? And then lastly, just one follow-up, you guys executed a transaction in the fourth quarter for about $300 million and it looks like to buy in the designated entities. Just a thought process or the driver behind that transaction would be great. Thanks.

Charlie Ergen — Co-founder and Chairman of the Board

Are you going to take the second part and on the… [Speech Overlap]

Tom Cullen — Executive Vice President, Corporate Development

On the DEs?

Charlie Ergen — Co-founder and Chairman of the Board

DE things.

Tom Cullen — Executive Vice President, Corporate Development

Yeah. John, this is Tom. Yeah, we did a transaction in the fourth quarter with one of the DEs where we just bought down their position and it was a transaction that both parties were interested in executing. So there’s not much more to it than that.

Charlie Ergen — Co-founder and Chairman of the Board

Yeah, they had a put right to do that, so…[Speech Overlap]

John Hodulik — UBS — Analyst

Okay, got it.

Charlie Ergen — Co-founder and Chairman of the Board

So that’s a bit out of our control. [Speech Overlap] Yeah? And then the second — and what was the first part of the question was?

John Hodulik — UBS — Analyst

Just the milestones and…[Speech Overlap]

Charlie Ergen — Co-founder and Chairman of the Board

Milestones, look, I think the… [Speech Overlap] Obviously, we have lots of metrics and milestones internally, and we’re not going to go through each and every one of those, because it’s just a bit complicated, and obviously our focus is on actually doing that. But the big milestone for people is probably going to be our first major city, that’s up and operational. That’s where we’ll find out. My experience has been — as we open up our first city, we will have problems. We’ll drop a call, something is going to go wrong that we didn’t expect and then that’s where we find out how our team and our vendors work together to solve those problems.

So, by the end of the third quarter, you will see that, you’ll see the first major city. We’ll have other cities. I don’t have a number for you at year-end, but we’ll be doing every month after the third quarter we’ll be doing multiple cities. And focused on a June of 2022, net of 20% of the population in the United States to meet our first FCC milestone. So, but by the end of the third quarter, you’ll be able to take a phone and see whether we work or not and see all the problems and we’ll have them for sure, and then see if we can fix them.

And then you’ll have a feel for how good we are at execution and how good our architecture is, and how good our network is going to be. But realize, we’re not going to be running in the first city, we’ll be crawling. And then hopefully we’ll get up and be walking by the end of the year.

Paul W. Orban — Executive Vice President and Chief Financial Officer

John, as Dave mentioned on the last call, he has built out a distributed deployment team in many markets around the country, the RF planning is completed and we now have permitting and zoning activity underway in dozens of markets around the country. So the activity level is very, very high. We just — we’re not at a position right now to forecast the final number of markets by the end of this year, but we clearly as Charlie said, we’re focused not only on the June ’22, 20% milestone, but we’re really vectoring towards the 70% milestone in June of ’23.

Charlie Ergen — Co-founder and Chairman of the Board

And John, our long form of [Indecipherable] is radios, right. But we could have done like everybody else has done and we could have build a network that was never going to compete with the Chinese, was never going to be up to the standards of Huawei. We chose a strategic –we said what’s the next generation, what’s the next generation of networks and that’s where you go to Open RAN, and when we went to Open RAN, there just weren’t any non-Chinese current providers that were ready to go, and it took us an extra year to get Fujitsu and MTI and now some others to help us with O-RAN, radios and architecture, that’s a long form [Indecipherable]. Those radios start coming in the second quarter and then we’ll — as soon as we get a manual, we’ll start deploying.

John Hodulik — UBS — Analyst

That’s great. Thanks guys.

Operator

We will now take our next question from Craig Moffett at MoffettNathanson. Please go ahead.

Craig Moffett — MoffettNathanson — Analyst

Hi. Charlie, two questions if I could. First, you’ve talked a lot about adding a strategic partner. Can you just first update us on that? And perhaps tell us your thinking of when is the ideal time to add that partner? Is it before you’ve done any of your test markets, would you rather have a test market in advance? And then related to that, you did a convertible security in the December, it wasn’t a huge number relative to the overall financing, but I wonder if you could just talk about your thought process of why you decided to go with the convertible rather than debt and whether we should read anything into that for future financing decisions?

Charlie Ergen — Co-founder and Chairman of the Board

Yeah. So I think on strategic partner, Craig, we look at it maybe a little bit different than The Street does. But for our strategic partners, our strategic relations, we already have — we already have the major strategic, whether it be VMware or Mavenir or Altiostar, Crown and SBA, Vertical Bridge and other tower companies, and more to come. So what we do there is — and we’re a pretty big R&D project and all those companies are helping us — their spending capital, but they’re not getting the meaty return on in terms of — in terms of that.

And like in the cloud, we’ve got several companies that have been helping us with cloud. And, wireless is a next big growth, telco is a next big growth for cloud. In fact, it’s probably their biggest growth of the next decade, that’s probably their biggest growth. And yet, it’s a little bit different than the normal data that they’ve been doing today. So there’s some things that we have to invent together and change in what they’re doing.

So the way we look at strategic partnerships, there is — money aside is, how do we make their company better and how do they make our Company better, and everybody we’re working with that’s our goal is, we are their champions to go help make those companies better, whether it would be to provide resources or test beds or testing on our network. And then there has been a lot of resources to help make us better.

From a financing point of view, the converted security, we just felt like putting capital on the balance sheet to get us to 2023, or I think, there’s always a chance more than zero, Craig that we’re out of business, we don’t know what the heck we’re doing and we fail. But I think the rational bet is that we know what we’re doing and that we have a team and partners to help us, and we’re going to get there and then obviously the world looks at us a little bit differently.

And you know, you’re probably one of our biggest skeptics and it’s our job to — you know, your stuff is well taken, I read your stuff, I think you’re a great writer. And I think you make great points. But not one of your points — not one ever has been something that we haven’t thought about here. And that we don’t at least believe we have a strategic solution to it.

And therefore, I think that our job is to go out and produce, is to go out and execute and build this network. And then obviously, internally we talked about, we’ll just prove our skeptics wrong. And so we don’t really talk, so we don’t go to bunch — we don’t spend a lot of time talking external about what we’re doing. We just stay focused at what we’re doing. And good teams and good companies that do things, they focus. And you know, we focus probably to our detriment. Well, we don’t explain what we’re doing to everybody, every day, but we’re going to show you. And that’s why I think John’s question I think earlier, when we can see something in the third quarter, I think will be important.

And then, so there’s — so the ideal time is when you can show people what you’re doing, if you believe in what you’re doing.

Craig Moffett — MoffettNathanson — Analyst

So I take that, that means that ideally you want to — before you would think about a major strategic partner in the sense that you’ve talked about them in the past rather than vendors, you would wait until after you have a sort of showcased set of test markets, is that the way I should read that?

Charlie Ergen — Co-founder and Chairman of the Board

Well, I don’t think you should read — I think that, I think we always thought we might need a strategic partner when we didn’t have any capital. We had a lot of debt maturities. But, I think what — same thing happened to us in DBS. We always wanted a partner in DBS. We wanted somebody to help us build satellites.

And what happened was, ultimately, we just got good enough, we just got confident enough, and good enough of what we’re doing that it just made sense to keep the equity. And it didn’t make sense to get — to give up the equity. And so, I think we’re probably in a similar situation today in the sense that we do have enough capital to build on our balance sheet today to build our network to the point — to the point where people can see whether Open RAN, cloud native networks work.

And the — and not everybody in this call sees it. But we see it every day. The number of resumes and the quality of people that are applying to come work with us is exponentially higher than it was last year. The number of vendors that are putting resources towards us is vastly different than it was last year. The — I think the confidence, the whisper confidence level for people in the know is vastly higher. We are leading though. Nobody has built a 5G Open RAN cloud native network before. We’re fortunate that Jio took a first step and the Rakuten took a second — took a second step. But we’re going to be the first network that does it, and completely.

And that — I don’t think that — there certainly always will be skepticism, but that every time we hit a milestone internally with our partners, it — that goes down. And you see it — you saw with Qualcomm when they put our — one of our frequencies in their chips. They don’t do that for — they cost them money, they cost them R&D, they cost them space, they cost them maintenance, they cost — cost in that radio. They don’t do that for companies that are not going to make it.

Craig Moffett — MoffettNathanson — Analyst

That’s really helpful. Thank you, Charlie.

Operator

All right. We will now take our next question from Philip Cusick at J.P. Morgan. Please go ahead.

Philip Cusick — J.P. Morgan — Analyst

Hi, thanks guys. Charlie, maybe following up on the O-RAN side, how has it gone in terms of integrating those network vendors, where are you versus what you expected a year ago with those sort of vendor integrations? And then second, Paul, regarding the fourth quarter financials, can you talk about any one timers here? Last quarter, I remember you had some programming credits [Indecipherable] you repeated this time. And is it right that the $70 million benefit versus the accrual on the telemarketing fund hit the G&A line? Thank you.

Paul W. Orban — Executive Vice President and Chief Financial Officer

I’ll take that, the last part of the question. So as it relates to one-timer, the only one timers that we had hitting the P&L was the $70 million coming back from the FTC case, and it did hit SG&A.

Philip Cusick — J.P. Morgan — Analyst

Thanks, Paul.

Marc Rouanne — Executive Vice President, Chief Network Officer

Yeah. This is Marc Rouanne. I’ll take the one on O-RAN. I would say that we are now moving into the second phase of our O-RAN journey that is, we’re starting to build. We have tested a lot of vendors. We have brought radios, compute, software together, and now, what we’re doing is that we are transferring this knowledge to our teams in the field in order to build it across the U.S.

So that’s really where we are. In terms of testing, integration, for me this has been a normal journey like I’ve seen in the past for other technologies. This is — we are coming at a time when there is majority in the O-RAN industry for us, so we’re just deploying it now.

Philip Cusick — J.P. Morgan — Analyst

Thanks Marc.

Operator

Okay, we’ll now take our next question from Walter Piecyk at LightShed. Please go ahead.

Walter Piecyk — LightShed Partners — Analyst

Thanks. Charlie, the first market that’s getting launched in the third quarter, can you just give us a little bit more color in terms of, is this like a — are you going to sell to consumer wireless or is this kind of a profile of what you can do with network sharing for potential strategic partners, investors whoever to look at just a little bit more color on that first market? Thanks.

Charlie Ergen — Co-founder and Chairman of the Board

Yeah. Well, first of all, it will — just it will be an NFL city. It will — so it will be a large market yet. Well, we certainly hope to have handsets for consumers although, it’s going to be a beta testing for lack of a better word, even Jio in India, they had to — took them six months to let people try it.

So — and I just don’t know what kind of problems we’re going to have. I just know we’re going to have problems and certain things aren’t going to work. And it’s also helped, it’s also — our integration with T-Mobile in our core and getting the hand offs right, and so it’s not — it’s a big test bed that I think is going to work, kinda day one, and I’m hoping by — and that’s why I say we’ll be crawling, and then I think it — I think that as you work those bugs and kinks out in a major market, it’s cookie cutter after that.

Walter Piecyk — LightShed Partners — Analyst

But what do you hope to highlight the most, the — how the network works into the core or how the RF works in terms of, hey, we can build a network where a phone will work if you drive around?

Charlie Ergen — Co-founder and Chairman of the Board

Well, I think that — I think the first part is blocking and tackling. So the foundation is what can we do compared to what other people do. Although we won’t have as much, I mean, we’ll be a — it’ll be a 100% 5G network, so that will be completely different than other people. We certainly want — certainly, speeds are important, but certainly that — you know, everybody don’t need a car that got Lamborghini that goes 280 miles an hour. And I think as long as we make something that goes 100 miles an hour, it’d be pretty good shape.

So I think we will look at consistency. And then we’ll look at where all the problems are. Where are our dead spots? Where did we go wrong in our RF plan? Where did we — where does our Open RAN have issues? And how are we able to analyze that, and how we are able to sell heal and self-correct, and it’s just all those issues. My experience in DBS was, I remember when we launched, our Pay Per View didn’t work.

And then as we started getting customers, we were more successful than we thought initially. Suddenly we couldn’t — we couldn’t actually provision people fast enough. We didn’t have enough compute power to do it. And once we learned all those things, and it took us three, four months to kind of get the right things in place, and then it was clear sailing. Then we still had problems, but they were kind of one-offs, one at a time. So my expectation is that we will — I think everybody on this call will have a pretty good idea where DISH stands by the end of the year, and some people are going to say, we bit off more than we can chew and some people are going to say, well, we always knew they could do it. But we are good at execution. Transition is tough. Execution is hard work, but there are no law of physics.

Well, this is important, there are no law of physics to stop us from what we are doing. There is nothing that has to be invented to stop us from what we’re doing. People know how to climb towers. We’ll be getting radios in. People know how to build radios. People now know how to build broadband DUs. Cloud exists, we don’t have to invent the cloud. Handsets exist, we just have to execute.

And right now, we’re — it’s right to be skeptical about our execution because we got to prove it. And — but this team, we have a team that can do it. And it’s just, for me, it’s a pleasure to get from the transition stage to the execution stage because it’s just hard work. And we never knew ten year — I’m looking at Tom here, but ten years ago, we knew we had to get 100 megahertz of spectrum. We’ve got 40 megahertz of spectrum. And we said, how are we going to — we just never knew if we’d get there or not. Now we’ve got well over that, and the — well, I can’t talk about the C-band auction, I think that — that’s a whole another dynamic and a whole another strategy, counter strategy kind of thing that you guys will be writing on in the next — the rest of the year.

And think all the analyst days you get to go to and then hear everybody’s story. And we are going to show you our story.

Walter Piecyk — LightShed Partners — Analyst

Charlie, can you talk a little bit about Boost as well? I mean you took this thing on. The margins, I think in the quarter were 15%, which is higher than a typical MVNO margin. Is that sustainable? Is it balanced with just continual sub losses? You also brought on Steve Stokols to run, I think historically, he has been very good at developing e-commerce channels. And I am curious like is there a plan to try and broaden the distribution and maybe reverse some of the sub losses there while maintaining margins with some type of e-commerce type strategy?

Charlie Ergen — Co-founder and Chairman of the Board

Well, the first answer to that, maybe John, on — the first is bad news for Boost because we have some — I think we — and Craig to his credit pointed this out in his — today, you might talk about the biggest negative kind of risk factor there is… [Speech Overlap]

John Swieringa — Executive Vice President and Group President, Retail Wireless and DISH Chief Operating Officer

Yeah, of course. Hi, it’s John. We’re two quarters in. We’re — I think we’ve talked about on the last call that we’ve had a lot of operational improvements to make converting to the MVNO economics. We’re certainly working with our distribution. We are focused on building new, more profitable acquisition channels. So you’ll see us look to make changes there as we move forward. We are working through some very big technology and operational projects with the Boost business. One to point out, which is new news this quarter is that we have received notice from T-Mobile, that the voice CDMA network will be discontinued on or around January 1st, 2022.

So the majority of our retail wireless subscribers are receiving services from that network were part of work on planning a big migration. So we can’t be certain that the network will actually shut down on that time line. But we have to plan and act as if it will, which will be costly for us. And as Charlie mentioned earlier, we’re focused heavily on building devices with our partners that will work on our future network. And so we have got some timing and other considerations there that we have got to work through. [Speech Overlap] Yeah, go ahead.

Charlie Ergen — Co-founder and Chairman of the Board

Yeah. No, I was going to say, so Boost is probable — so I don’t think that this quarter that these kind of margins are probably sustainable to the extent that, in fact, it might not be very good at all in the sense that we look at it from a profit and loss. The Boost customers are some of the most economically challenged customers out there, the Boost pays attention to them and they are good customers for Boost. But they are economically challenged. And so if they — it’s hard to upgrade to go from a phone that works great and works in their territory, works great and then go to another phone that won’t even work on our network because we’re 5G.

So then we have to upgrade them again. So if you run the numbers on that, and there would be significant fallout from that, in my opinion. The second thing is, I don’t even think we could get to supply of the phones that we would need. So we just don’t — it’s — you can’t order phones and not know that you can move the phones and the supply is somewhat limited for the kind of phones we might need for that.

So, now that’s a material risk that’s out there on Boost. And — but I think the positive side is the team, the Boost team, John, leading the team showed they can execute, they showed that they, in a very short period of time, could turn around some past practices from Boost that weren’t economical. And maybe were to show Wall Street the numbers. We’re not into that game here. We’re into actually managing your capital and our capital in an efficient manner.

And so they have shown that they can turn them around in a very short order. I set a goal for them to be profitable by the end of the year. They were profitable the first quarter. And they became more profitable in the second quarter. So we’ve got a management team that could execute and they are on pins and needles and edge of their seat to get our first market on our network where we can control our own destiny.

Walter Piecyk — LightShed Partners — Analyst

Okay, thanks.

Operator

All right. We’ll now take our next question from Jonathan Chaplin at New Street. Please go ahead.

Jonathan Chaplin — New Street Research — Analyst

Thanks. Charlie, it seems like the last big vendor sort of category of vendors to slot in for the network is a cloud partner. And I’m wondering if you can sort of talk through the merits of one cloud partner versus another? Whether it would be a single cloud provider that you would partner with or whether it could be non-exclusive, you could partner with multiple? And then I’m wondering if that’s a relationship that you will be able to leverage to sell into enterprises, given that so much of the opportunity in 5G seems to be in the private network, enterprise private network space. Whether you will be able to leverage the relationships of a cloud partner, who already have strong relationships in enterprises to get into that business?

Charlie Ergen — Co-founder and Chairman of the Board

Yeah. I will let Marc, I’ll make just an opening comment, and I’ll turn that over — this question over to Marc. But the challenge I’ve given with every vendor to our team and to Marc is that our cloud provider has to, first and foremost be best-in-class technically. And we’re fortunate that there are several vendors that actually can live up to that. And there is just great cloud technology in the United States. And it’s a whole new way of running the network. And maybe I’ll let you talk about how that affects enterprise.

Marc Rouanne — Executive Vice President, Chief Network Officer

Yeah. So first of all, we have seen a very strong progress from our cloud choices. I mean, several different choices in the U.S. and Charlie was saying that Telco is a bit different in the cloud, and now we have the confidence that the cloud partners in the U.S. have the telco technology that we need.

And that’s a big thing for us. So we feel very good about that. When it comes to our software, you remember that we — the first choice we made was to set a VMware. And the reason was that we wanted to control the software that we use. And VMware has given us over the last 15 months, has given us this capability to move our software between clouds, but also from the top of the cloud to the edge.

And no other network or no other architecture has that capability in the world yet for us. That was very important because when you discuss private networks, different customers want different setups. Some want to have a certain type of cloud, some want to have their private cloud, some want to put the software on their premise, on their factory or on their campus. And for us, it has to be automated. And so we spend a lot of time with our cloud partners to be able to do that seamlessly.

And I — like I said, for the O-RAN, we are now in the deployment mode where we have the capability with VMware and with some cloud partners to move the software east, west and north and south.

Tom Cullen — Executive Vice President, Corporate Development

Jonathan, this is Tom. Most of the focus has been with Marc’s team working on the technical architecture, but we clearly expect a cloud partner to bring a go-to-market component to the relationship.

Jonathan Chaplin — New Street Research — Analyst

Got it. Thanks.

Operator

We will now take our next question from Kutgun Maral at RBC. Please go ahead.

Kutgun Maral — RBC Capital Markets — Analyst

Thanks for taking my questions. Charlie, you’ve talked about transitions, and I know the focus is on wireless, but maybe thinking through the transition across Pay TV. Effectively, all your content partners have launched their own direct-to-consumer services. Obviously, this isn’t new, but I am curious if the tenor of your discussions during the quiet [Phonetic] negotiations is changing? And if so, is it more about fine-tuning pricing and packaging terms with programmers or do you expect to take an even harder line with ultimately, I guess, who you’re distributing? And if I could I have a brief follow-up.

Charlie Ergen — Co-founder and Chairman of the Board

Yeah. I don’t know that it’s a harder line. I think that what — we value programming as to how many people watch it. So for lack of a better word, cost per viewing hour, and what are the alternatives to get it. So obviously, to the extent that we had football exclusively, we had NFL season ticket that was an exclusive. That has value to the extent that you could watch it in ten different places, it has one-tenth of value, right? So when our — as we have a content negotiation and our content — that content is available through other means, it’s just less valuable to us.

And then the content providers are strategically, I think, in their strategic rooms, they are saying, how do we keep these linear guys paying us much money as possible for as long as possible while we go direct to the consumer and cut them out. And by the way, we are making these guys bundle every channel and we will go to the consumer and give them a lot more flexibility and be a la carte.

So obviously, that’s going to be a tough business model going forward. We are unique in that, and Erik maybe speak to this, we have made our viewing — we looked at viewing as an experience and we have done a lot of different things to make the experience on DISH Network better than the experience might be on one of these vendors, and we go after people that are more rural and so forth and so on.

But look, it’s why the — all I can say is I am sleeping at night, I am sleeping at night now, because we — I’ve been through this before. We knew the big dish business was going to be a business that would be challenged four years before anybody ever wrote the first word about it. We knew that this model would be challenged in video, I think we talked about it on a conference call probably, you go back and look at the record, probably seven or eight years ago, when everybody kind of laughed at us and said, why aren’t you spending more money to get these customers?

And we’ve made that transition that, that it’s a mature declining business, and it’s a solid business. The cash flows are good. It’s not going away, but it’s going to decline. And I would expect that our cost of programming would go down or would — or wouldn’t go up as much based on customers going direct. And we probably will lose some of our customers — some of our programming partners, we may lose as a result of that.

But Erik and his team will run it as a business. We have great relationships with our consumers. We found that out with HBO. HBO didn’t renew, they wanted minimum guarantees from us and the high prices that we — that made no sense for us to pay. And obviously, we’re a competitor. So they had no — and they had Game of Thrones coming up, final season to Game of Thrones. We didn’t lose many customers let me put it that way because our relationship was strong. And they watched Showtime and Starz and other things, Netflix and so — and HBO lost the revenue stream. So do you want to jump in on that? No? fine.

W. Erik Carlson — President and Chief Executive Officer

I think you handled it.

Charlie Ergen — Co-founder and Chairman of the Board

Alright, operator. I think we have time for one more before we…[Speech Overlap] Sorry?

Jonathan Atkin — RBC Capital Markets — Analyst

This is Jon Atkin. Hello. Yeah, I have got a follow-up question from Kutgun. This is Jon Atkin with RBC. On the 5G, I wanted to basically drilldown a little bit on the tower MLA that you referenced on the fiber partnerships and what type of run-rates are you targeting per month or per quarter in terms of getting the equipment deployed? Is the gating factor, the delivery of the radios or is it more about the permitting and the entitlement? What kind of pace can we start to look forward to through the end of the year?

Charlie Ergen — Co-founder and Chairman of the Board

Yeah. I think the gating line [Phonetic] can be radios. So, it’s right to say it’s a supply chain. It’s supply chain management.

Jonathan Atkin — RBC Capital Markets — Analyst

And in terms of the number of markets that you are going after besides the NFL cities and to get to that 20% target and beyond, you didn’t obviously need to redeploy the hardware, pre-deploy the hardware of the network. So, what kind of a cadence are we looking at given that you already have a lot of the MLAs in place and the fiber agreements in place?

Charlie Ergen — Co-founder and Chairman of the Board

Well, the cadence will be to get us to 20% in June. So that’s 60 — I don’t know the exact number of pops that is, but it’s probably 60 million, 65 million pops.

W. Erik Carlson — President and Chief Executive Officer

Well, we mentioned it earlier on the call that the activity is underway in dozens of markets. The target is really focused on the 70% build-out by June of ’23. The requirement is for 15,000 towers minimum. And as I said on the last quarterly call, I think it will be north of 15,000 by that timeframe.

Charlie Ergen — Co-founder and Chairman of the Board

Yeah. Mayo, and in our daily staff means Mayo is always saying, I am ready whenever you are ready and he is looking at Marc and Stephen and Tom and that means that I am ready whenever you guys are, where you are going to have radios and we have a schedule for radios. And so I am hesitant to give you that cadence because with COVID and supply chain and everything else, we have already had some delays in that and we are pretty confident, but until the factory production is spitting it out, we get to see with our own eyes, we will see. But okay, it looks pretty — the cadence looks pretty good. So operator, we have time for one more from the analyst community and then we will have time for a couple from the media.

Operator

Alright. We will now take our final [Speech Overlap] Yes, we will take our final question from the analyst community. [Operator Instructions]. Our final analyst comes from Doug Mitchelson at Credit Suisse. Please go ahead.

Doug Mitchelson — Credit Suisse — Analyst

Alright. Thanks for squeezing me. Just a couple. You guys have already covered a lot. Tom, when you say a cloud provider should bring go-to-market component to the relationship, just interested in what you mean by go-to-market component. I think a jump ball, are you guys wanted to give us a sense — I understand, Charlie, your comments that you can fully fund the network build-out at this point based on cash flow and cash on hand. But just curious if you’re willing to say what the 2021 spending on deploying the network would be?

And then lastly, sort of just not sure if there is much more fishing I can do here, Charlie, but just adding on to Craig’s question. I think I was pretty surprised by you using equity. You certainly have a pretty long history of avoiding equity. I assume you expect a lot of value creation if you execute here.

The last couple of years, you’ve mentioned there was a lot of interest in financing and helping you with funding the network and shifting over to equity from that seems like a change in sort of balancing how you might financing. So was the demand by others willing to give you money just sort of too expensive in terms of share of capacity or in terms of the rate they wanted to charge you versus equity? Anymore that you could help us with understanding, issuing a convert rather than issuing debt or taking an investment in would be helpful? Thanks so much.

Charlie Ergen — Co-founder and Chairman of the Board

Yeah. This is Charlie. Obviously, there is a balance between how much debt and equity you have, and for the most part, we’re — we believe, given where we think we are going to go, that we’re relatively debt-free on the wireless side. And we thought we would get better execution. The market kind of threw up on it for whatever reason, and we thought we’d get a little bit better execution. So we’re disappointed.

But on the other hand, it’s not going to be material in the scheme of things where we’re going. So that was 0% interest for five years was attractive. And again, I think we didn’t quite hit our metric of where we thought we would come in pricing-wise. And had we — in hindsight, maybe knowing if it was going to be conversion in the $40 — low $40 range, I think maybe we’d have thought about it differently.

But you win some you lose some, and our best guess there wasn’t quite as good as it should have been, I guess. And so I go back, file that one away, and now we’re a little smarter. Tom, do you want to take the rest of it?

Tom Cullen — Executive Vice President, Corporate Development

Yes, Doug, nice job getting in four questions there. As far as the go-to-market, obviously, the conversations with — they range depending on which cloud service provider we’re talking to. But they clearly all have enterprise sales channels and they all see a movement towards distributed cloud, mobile edge computing, which brings 5G into the conversation naturally with their customer base. So beyond that, I don’t want to go into more detail.

Doug Mitchelson — Credit Suisse — Analyst

That’s helpful. And spending this year?

Charlie Ergen — Co-founder and Chairman of the Board

We don’t give guidance on that.

Doug Mitchelson — Credit Suisse — Analyst

Alright. Thank you all very much.

Charlie Ergen — Co-founder and Chairman of the Board

Alright, Doug. Thanks.

Operator

We will now take our first question from the media from Scott Moritz at Bloomberg. Please go ahead.

Scott Moritz — Bloomberg — Analyst

Great. Hey Charlie, you spoke earlier on the call about the risks of the Boost network shutting down. Have you had a chance to talk to the FCC about this? Do you have any confidence that maybe they will give you a break on the timing of that shutdown?

Charlie Ergen — Co-founder and Chairman of the Board

We have not talked to the — we have not talked to it. Well, I shouldn’t say, I haven’t talked to the FCC. It’s possible that our staff has. But it’s a risk that’s out there, and we’ll — we — look, this administration wanted four providers. We are one of four providers. Hope we’ll see what the — we don’t know what the regulatory environment. It’s one of the risks that we always worry about is that Washington picks winners and losers, and they make policy that affects people one way or the other.

And we’ve had some good luck, we’ve had some bad luck with that as have others. So we’ll have to see which way that goes. But we’ll probably tell you a little bit. I’ll probably tell you a little bit about which way the wind is blowing. But look, we view it as anti-competitive. I mean, as simple as that. Obviously, those customers, if they can’t go to our — we don’t have a network up yet, they obviously — if — they’ve only a couple of places they can go. And so we view that as anti-competitive.

Scott Moritz — Bloomberg — Analyst

Great, thanks. Do you face the risk of those customers going back to T-Mobile? And would that also be considered anti-competitive?

Charlie Ergen — Co-founder and Chairman of the Board

Well, you can see what — look, I don’t know what — I can’t speak to the motivations, but obviously one of the beneficiary — what we can say is one of the beneficiaries of a premature turnoff of the CDMA network would be T-Mobile.

Scott Moritz — Bloomberg — Analyst

Got it. Thanks.

Operator

[Operator Instructions]. We’ll now take our next question from Amy Maclean at Cablefax. Please go ahead.

Amy Maclean — Cablefax — Analyst

Hi, thanks for taking the question. I just wondered, Discovery said today that its Discovery Plus service has surpassed 11 million paid subscribers. I wondered what you thought of that service and do you foresee it changing how you deal with them as a partner?

Charlie Ergen — Co-founder and Chairman of the Board

I think Discovery has got great content. And we’ve had a long-term relationship with them. But obviously, to the extent that you can get it on a la carte basis, it will affect future negotiations. Because if our customers — some of our customers don’t watch Discovery. A lot of our customers don’t watch Discovery, should we burden every customer with Discovery if they can get it somewhere else? I mean, that’s the — so it has to be a relatively — has to be a fair rate that we can burden customers who don’t watch it and you have to run that math.

And that’s just the economics. It’s not rocket science. We know our customers who watch it, how long they watch it in real-time. And look, that’s why I started out with, which I don’t think I’ve done in a long time, that’s why I talked about transition to start the call because that’s why it was so important for us to get in 2020 where we are.

Okay, operator, I think we can take one more from the media, please.

Operator

[Operator Instructions]. Alright. There appears to be no further questions. I’ll turn it back to the speakers. Please go ahead.

Paul W. Orban — Executive Vice President and Chief Financial Officer

Alright. We will be seeing in late April, right.

Charlie Ergen — Co-founder and Chairman of the Board

Thank you, all. Appreciate it.

W. Erik Carlson — President and Chief Executive Officer

Thanks, everyone.

Operator

[Operator Closing Remarks]