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DISH Network Corp  (NASDAQ: DISH) Q4 2019 Earnings Call Transcript

Final Transcript

DISH Network Corp  (NASDAQ: DISH) Q4 2019 Earnings Conference Call

February 19, 2020

Corporate Participants:

Jason Kiser — Vice President, Investor Relations and Treasurer

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

Warren Schlichting — Executive Vice President and Group President, Sling TV

Marc Rouanne — Executive Vice President, Chief Network Officer

John Swieringa — Executive Vice President and Chief Operating Officer

Analysts:

Doug Mitchelson — Credit Suisse — Analyst

Michael Rollins — Citi — Analyst

John Hodulik — UBS — Analyst

Rich Greenfield — LightShed — Analyst

Philip Cusick — JP Morgan — Analyst

Kannan Venkateshwar — Barclays — Analyst

David Barden — Bank of America — Analyst

Craig Moffett — MoffettNathanson — Analyst

Brett Feldman — Goldman Sachs — Analyst

Scott Moritz — Bloomberg — Analyst

Presentation:

Operator

Good day, and welcome to the DISH Network Corporation Q4 and Year-End 2019 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Jason Kiser. Please go ahead, sir.

Jason Kiser — Vice President, Investor Relations and Treasurer

Great. Thank you, Ashley. Thanks for joining us, everybody. I’m joined today by Charlie Ergen, our Chairman; Tom Cullen, EVP of Corporate Development; Erik Carlson, our CEO; Brian Neylon, President of DISH; Warren Schlichting, President of Sling; Paul Orban, our CFO; John Swieringa, our COO; and Tim Messner, our General Counsel. And for the first time, we’re going to be having Marc Rouanne, our Chief Network Officer for wireless, and Stephen Bye, our Chief Commercial Offer for wireless join us.

So, I’ll turn it over to Tim to do Safe Harbor,and then Erik and Paul have some prepared remarks to get to.

Timothy A. Messner — Executive Vice President and General Counsel

All right. Thanks, Jason. Good morning. 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 from our forecast. We assume no responsibility for updating forward-looking statements. For more information, please refer to the risks, uncertainties, and other factors discussed in our SEC filings. As part of the process for Auction 103, we filed an application to potentially participate as a bidder. Because of the FCC’s anti-collision rules, we’re not able to discuss what if any spectrum resources we bid on, and we won’t be answering any questions on that auction in today’s call.

With that, I’d like to turn it over to Erik Carlson, our CEO.

W. Erik Carlson — President and Chief Executive Officer

Thank you, Tim, and welcome, everyone. Well, as always, never a dull moment here, and of course, the big development with federal judge Victor Marrero’s decision last week in favor of the T-Mobile merger, which for us is a key step forward as we look to acquire Boost Mobile from Sprint and activate the MVNO agreement with T-Mobile.

As I expect most of you know, there remain a few hurdles between here and deal certainty. Notably California PUC approval and a fulfillment [Indecipherable] requirement. But we’re taking appropriate measures, assuming the deal closes, and have teams working to ensure a smooth onboarding of the Boost business, including its dedicated employees and retail partners, and a seamless transition for servicing the Boost customers. Since our wireless announcement last July, we’ve had team members from all over the business really kick into overdrive and stay — to prepare for our entry into the retail wireless state and to stay on top of the day-to-day business. And I want to thank the entire team for their extra effort and focus. I’m confident that our preparations will serve us well as we move toward close and continue our build-out efforts.

As ever, our goal is to defer competition and promote America’s leadership in 5G. Charlie and Tom are here to address not just our entry into the retail wireless, the progress of our 5G broadband network. A few brief observations on the quarter before I turn it over to Paul. First on the DISH TV side, we remain dedicated to pursuing the right customer in the right geography and delivering on the service, technology, and value. It’s a strategy that has been yielding results for us over the longer term, and I’m pleased with the direction of our overall acquisition trends and the stability of the subscriber base. In the quarter, we saw 100,000 net subscriber loss for DISH. Looking back to the year-ago period, we lost 334,000 net subscribers. And look, it’s not quite an apples-to-apples comparison. We were facing a different set of program challenges last year than we are now. That said, I do believe that we review our continued focus from Bryan’s team and operational discipline with regard to acquisition and retention. So in addition to our right customer right geography philosophy, I think you can credit our continued investment in the Hopper platform to the relative stability of our user base.

We have two examples in the quarter. We announced integrations at Amazon Prime, as in our app on the Hopper, and Google Nest Hello video doorbell app through the Hopper platform. These kinds of improvements really underscore the value that we work every day to deliver across the business for DISH TV. On the Sling TV side of the house, we continued to disposition the pricing and delivery of overall value. While we saw an annual net sub growth, Sling did lose 94,000 customers in the quarter compared to a net gain of 47,000 in the fourth quarter last year. A few points on this to consider.

Obviously, this ecosystem is changing quite a bit. There is the dynamic of the broader OTT market change late last year with the wind down of Sony View and the introduction of additional streaming providers that launched with the aggressive commercial offers. Our goal is slated to draw tight focus on user experience and so overall value in its place in the streaming ecosystem which forms the excellent standalone solution for many. And our focus on best of live makes it really a perfect complement for the growing crowd of SVOD players. Recognize that we have the lead in customer experience.

We’re dedicated to offering flexibility at the best price point. And you can see that with some of the added features and functionality we brought the service in the fourth quarter, including expanded live news offerings that included the launch of Fox News and the Sling Blue; free cloud DVR that provides a consistent experience for all TV subscribers, including subs in both Blue and Orange services, and updated channel line-ups in both the Blue and the Orange services. We see Sling well positioned to perform in the dynamic marketplace, but we also need to execute.

So before we get to Q&A, I’d like to turn it over to Paul Orban, our CFO, for a few brief remarks about the financials for the quarter.

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

Thank you, Erik. Our fourth quarter of DISH gross adds are up roughly 40% year-over-year, and we continue to activate high-quality drivers. However, Sling lost subscribers for the first time ever due to increased competition in disconnects related to the football season ending. And looking at the P&L, our operating income and EBITDA for the quarter are both up compared to last year, primarily due to improved margins, lower satellite and transmission expenses, partially offset by higher SAC. Our revenue declined due to a lower subscriber base, which was partially offset by higher Pay-TV ARPU. The increase in Pay-TV ARPU was driven by DISH TV’s Q1 2019 price increase and our continued focus on acquiring and retaining high quality subscribers. In addition, Sling benefited from increased advertising revenue.

Our subscriber margins for the quarter were positively impacted by our higher quality subscribers, and reduced costs related to channel and mobile, including regional sports. However, we continue to face long-term pressure from programmers who want higher and higher rates, even in the face of declining viewership. DISH TV SAC is up this quarter due to increased subscriber activations. However, the cost per activation decreased slightly to $850 from $861 year-over-year. We continue to supply a greater percentage of our new customers with Hopper receivers. This drives additional hardware and installation costs, but we believe offering our best equipment influences customer loyalty over the long term. It delivers a better user experience, which has improved our churn rate.

Satellite and transmission expense decreased in the fourth quarter versus last year, as a result of the satellites we acquired from EchoStar during Q3. As a reminder, these satellites are now capitalized on our balance sheet, and are being depreciated over their remaining useful lives. We no longer make cash payments to EchoStar for the use of these satellites, which positively impacts both EBITDA and free cash flow.

G&A expenses were up this quarter, as a result of cost to support our wireless initiatives and legal fees. Despite increases in wireless capex and SAC, this generated $1.18 billion in free cash flow in 2019. During the fourth quarter, we completed the rights offering, raising approximately $1 billion, and ended the fourth quarter with approximately $2.9 billion of cash and marketable securities. This gives us the ability to purchase Boost for $1.4 billion, redeem the $1.1 billion debt maturity in May, and fund our wireless initiatives for 2020 with cash on hand. Our 2020 wireless expenditures are currently expected to be between $250 million and $500 million. As we’ve said before, we will be opportunistic in accessing the capital markets.

Finally, I echo Erik in saying how excited we are to begin serving Boost customers. In the last few months, we’ve been working with the Boost team, preparing for the close, and look forward to them joining the DISH family.

With that, I will turn it over for questions. Operator?

Questions and Answers:

Operator

Thank you. We will now begin our first Q&A session. This Q&A session is for members of the analyst community.

We will now take our first question from Doug Mitchelson of Credit Suisse. Please go ahead.

Doug Mitchelson — Credit Suisse — Analyst

Thanks so much. Charlie, there’s been a lot of interest as to whether you should announce at some point soon an anchor tenant or a founding partner for your 5G wireless network build out, in particular, discussions with the likes of Amazon or other tech platform. Is there any context on the topic you’re willing to share with investors at this point. It might be helpful to understand just your thinking on timeframes, whether it’s, whether it’s for anchor tenants or raising finance and it seems like you have a lot of flexibility now and all this assumes a T-Mobile/Sprint closure. Any thoughts on that would be helpful. And I’ve got a couple of quick follow-ups on the Pay-TV business. Thank you.

Charlie Ergen — Co-founder and Chairman of the Board

First, on Sprint and T-Mobile closing, so at this point, we’re highly confident of that. Nothing has really changed in terms of what our strategy is. We look at strategic partnerships in a number of great ways, and not all those are financial, but certainly, we’re — the infrastructure’s good, so we don’t have to build it, and we can partner somebody who has got infrastructure things in place. We’d rather do that if wants to — comes and strikes up and it makes sense for all parties, then obviously it would be very good to build out some of those things ourselves. And in terms of anybody that we look at strategically, the first step is that they’ve got to be aligned on our view, on our vision of where wireless can go, and we have a pretty solid view of where we think wireless can go.

It’s materially different in terms of architecture of where networks are today. And it’s very similar to when we started the digital satellite. We launched our own satellite. Went 100% digital. The world at that point what was predominantly analog, and our cable initially was analog. It was 1995. It was 2009 before the broadcasters went digital. The same kind of thing taking place today. And again, I just think that it’s — our company’s — it’s not the first time we started working on wireless, and we’ve been at it for a long period of time, and we’ve put in a lot of building blocks in place for it, and we know we have a different way to the build the network with a lot less expenses to build a network, a lot less expensive to operate the network. We have less people because of automation and the fact that we can — our network is primarily going to be software and in the cloud, versus people’s hardware networks today. The fact that we can embrace open standards. It’s just a different model. So as you put those things together, obviously we’ll share some of those things with industry but today’s focus — let Tom talked about today’s focus is. The short answer is you’re not going to get a lot of information on particular partnerships and all that during the call which you guys always want, but you’ll know whenever its best for you to know.

Timothy A. Messner — Executive Vice President and General Counsel

Yes, Doug. It’s Tom. Obviously, in the summer when we announced the transaction, there was an increase in interest from prospective partners. And then that is ramped further with the judge’s order last week. It’s probably a shorter list of who we’re not talking to, but we don’t feel any particular urgency around striking a strategic partnership at this point. Our focus, as Erik said, is prepare to integrate the Boost business so we’re operational day one. The second focus is to finalize the architecture of the network, which Marc and Stephen have been working on for several months, and we’re encouraged by the progress. Third area of focus is to — we have integration work occurring right now in multiple labs around the country with various sets of vendors, and so the third area will be to narrow that down and move into contract finalization with key vendors. And then the fourth area is to plan deployments. We want to start deploying later in 2020. We’re very cognizant of the FCC obligations that we’ve made, and we actually look forward to beating them because once we unleash nearly 100 megahertz of spectrum on a market by market basis, we’re going to enjoy owner economics where our cost per gig will be so much lower than both the MVNO and the incumbents that will be incented to price aggressively and compete aggressively.

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Doug Mitchelson — Credit Suisse — Analyst

Helpful. Very helpful, thank you. A quick question on Sling. Looking at the fourth quarter, should we be extrapolating full-year results as we look forward for Sling? Or does the fourth quarter suggest any kind of change in strategy or growth impediments that we should be considering?

Warren Schlichting — Executive Vice President and Group President, Sling TV

This is Warren, by the way. I think there were a lot of different influences in last half of 2019. So, I think extrapolating might be dangerous. We had a price increase. We shifted our channel lineup so that it doesn’t include RSNs anymore. So, we like our position. We like our team bundle. We may not be everything to everybody, but we like where we are, and we’re taking a disciplined approach.

Doug Mitchelson — Credit Suisse — Analyst

Thank you, all.

Operator

We will now take our next question from Michael Rollins, Citi. Please go ahead, sir. Your line is open.

Michael Rollins — Citi — Analyst

Thanks. Couple of questions. First, I was wondering if you could expand a bit more on the cloud native solution for the wireless business, how that differentiates the cost, and how that might differentiate the customer experience. And then also, during your testimony — I guess it’s a redacted transcript. The parts that were not redacted referred to the business model embracing bundling, and I was wondering if you could expand upon what are the types of bundles that you could foresee for the wireless business. Thanks.

Marc Rouanne — Executive Vice President, Chief Network Officer

Yes, on the first question — this is Marc Rouanne on the architecture. So the cloud native — first of all, we have been testing and looking at the cloud and all the software that we are going to use each cloud native. Cloud native means you can put it in the cloud or you can put it on premise, or where you want. If you scale automatically, it will be adapted to the different usage. Now, why is there a difference for the end user? Actually, when you’re cloud native, within seconds, you can adapt to a new server, right? Because you can move the software, you can adapt it, you then configure it. And a good way to think of it is the catalog of services you see on AWS or Azure. They do that for the data centers. We will have the same type of native software catalog of services that you can stitch together and apply to any use case, right? So the capability to differentiate is very big. The other thing is that of course the costs are different because now you’re in data centers, you are on the all-purpose hardware, you are using the open source stacks. So, that’s what makes the difference. A GDP speed and adapting to and the use case.

Charlie Ergen — Co-founder and Chairman of the Board

And this is Charlie. I can’t remember the question. The question was something about bundling and — bundling what?

W. Erik Carlson — President and Chief Executive Officer

Bundling around your testimony.

Charlie Ergen — Co-founder and Chairman of the Board

Bundling around testimony, right. And look, I think — I’m not sure exactly — I don’t remember exactly all my testimony, but from a bundling perspective, we have a chance to have more customer relationships than we do today. Obviously, we move out of more rural centric business to a more urban business. And so, a variety — obviously, video is a big part of what we do. But we also have in-home services. We also are able to connect people in a different way. So, there’s a number of things we’ll be able to do. I mean, the big picture is, I think DISH is on a growth — is now — we’ve put a lot of investment in the last few years to put ourselves in position that has linear TV declines. We had another engine to grow the business, and we’re now in that situation. So it’s very similar to — again, it’s very similar to when we were doing the big DISH business and the analog business, and we saw that business declining four, five years before anybody else, and we were prepared with digital broadcasting when the time came, and we were able to grow our business exponentially over where it had been before. And I think we’re in a similar situation where we are now. We’re able to grow our business in the wireless side of it, but it was including growth in video, because a lot of the traffic that will go across our network, in fact the majority of the traffic across our network, will probably be video.

Michael Rollins — Citi — Analyst

Thank you.

Operator

We will now take our next question from John Hodulik of UBS. Please go ahead. Your line is open.

John Hodulik — UBS — Analyst

Okay, great. First of all, is there any more detail you can give us on your go-to-market strategy in either the prepaid market or postpaid markets in terms of pricing distribution? When we should expect to see you guys to enter those markets. And then as part of the deal, you have access to 20,000 towers and a bunch of retail locations for Sprint. I was wondering if you’ve done much due diligence on those sites, and if it’s a big benefit for you, and do you expect to be utilizing any of these assets going forward? Thanks.

Charlie Ergen — Co-founder and Chairman of the Board

We’re not ready to disclose our go-to-market strategy. Obviously why — we’re not very smart, but we’re not that stupid to disclose that. Obviously, the towers in the stores or potentially positive, particularly the towers in the sense that it frees up — T-Mobile is not allowed to squat on the towers, and obviously towers are a big part of things that we’re going to need. And so they are required to give us notice when they’re going to vacate a tower. That probably helps on the margin on our build-out, and perhaps reduces some of our costs.

John Swieringa — Executive Vice President and Chief Operating Officer

The decommissioning of Sprint site will likely make available RAD centers that are at attractive heights to us. So, there is a rolling forecast that they could provide to us as to when they intend to vacate a tower.

W. Erik Carlson — President and Chief Executive Officer

I think that the big picture is that because we have used the T-Mobile network for seven years, along with some of the towers and so forth, we have a pretty big safety net. It gives Marc and Stephen a little bit more leeway in terms of how we build our network, we can take a few more chances, we can experiment a little bit, we can use some providers that maybe aren’t household names that have done great things in the lab, or great things in other parts of the world, but really haven’t been factors — are household names in the United States. It gives us a lot of — they’ll do that — one of the things that maybe Marc wants to talk about. We have made to determined architecture that we will be an ORAN compatible network with the 7:2 split. So that is a — that’s something that some of the big guys don’t do. None of the incumbents do it in the United States today. But that is without question the way a modern network should be architected. And once you architect it that way, it opens up a whole different set of range of options, which are important to this country, right? When you start looking at some of the security concerns of this country with the Chinese vendors and things like that, there is no — the way to compete is to build a better network, not to build the same network using old technology. I don’t know if you want to comment on that a little bit, Marc.

Marc Rouanne — Executive Vice President, Chief Network Officer

Yes, so we’ve been working on ORAN for the last few months, and now we see that they’re getting ready for us, and actually for other operators as well. That’s the big trend in the industry. Everybody is working towards ORAN. You may wonder what is ORAN. It’s very simple. You put something on top of the map, that’s your radio. And then you can do whatever you want on the rest of the network. It will never impact again your radio. So, you can choose the vendors, but you can also have long-term sustainability of your radio deployments. Whereas today, if you touch the radio, you touch the tower of the site, you touch the network, and that’s why it’s so lengthy to bring new stuff in the existing networks. We won’t have that problem; once we put the radio there, we do one climb, and we can upgrade, and we can change the software as fast as we want.

John Hodulik — UBS — Analyst

Great, thanks. Very helpful. One last question. Any progress, Charlie, on the negotiations with T-Mobile about leasing them the 600 megahertz, and is that a potential source of cash flow growth?

Charlie Ergen — Co-founder and Chairman of the Board

No, we have no current update on that.

W. Erik Carlson — President and Chief Executive Officer

No, we can’t provide it.

John Hodulik — UBS — Analyst

Got you. Thank you.

Operator

We will now take our next question from Walter Piecyk of LightShed. Your line is open.

Rich Greenfield — LightShed — Analyst

It’s Rich Greenfield for Walt. He wanted me to ask a couple of wireless questions, and then I got a media question. Lead first on wireless. Charlie, you had said you’d be opportunistic in accessing the capital markets. I think if we go back to your core testimony, you were asked about a $1 billion loan from SoftBank, which would provide working capital because they can issue at a lower rate. Is that still available to you?

Charlie Ergen — Co-founder and Chairman of the Board

SoftBank has made a commitment to us to assist in a small part of the financing of up to $1 billion. And so, yes, that is available to us. The net effect of that is it just — it would reduce our interest cost lower than it otherwise would be. It’s not a $1 billion of capital for us. We still got to pay it back, but it does reduce our — would reduce our interest expense.

Rich Greenfield — LightShed — Analyst

Then on the media side of the house, your satellite sub losses seemed pretty minimal, given the amount of programing in terms of regional sports networks that you dropped that we continue to calculate your saving over $400 million a year on not having those RSNs. You’ve lost at most $30 million to $40 million, it looks like of EBITDA, from the sub losses the last couple of quarters. Is there any reason to think that this wasn’t a great decision? I mean, it just keeps looking more and more like not in the RSN business, unless they’re on a tier. But a lot of flexibility of how you tier them going forward without minimums. Is there any other way to look at this, and does Retrans with Sinclair ultimately change this? And then just the last question, kind of a big picture. As you think about DTV and DISH, it seems like they’re in increased trouble on the DIRECTV side. Any thoughts you could share given the government’s I guess, amenability to large-scale transactions? Does this make you rethink about DISH and DIRECTV at some point?

Charlie Ergen — Co-founder and Chairman of the Board

We’ll start with DISH DIRECTV. Probably inevitable that those two should go together just because the growth in TV is not coming from linear satellite TV providers. It’s coming from huge programmers, and trillion-dollar companies. So, I think the regulatory environment, usually it’s behind the marketplace, but I think that becomes increasingly likely that that makes logical sense. Having said that, obviously there still could be regulatory issues there. And we’ll have to see how that all develops, but that’s to me seems — and maybe each company only has two subscribers when you put them together, but eventually those two are probably going to — that’s going to make some sense because you just can’t — you can’t swim upstream against a real tide of the over-the-top, big players. I forgot what the first question was. Oh, some regional sports.

Look, everything we do here is somewhat mathematical in the sense that we have real data for a long time of what our customers watch. And I don’t think it takes real rocket science to see when customers watch and how much they watch, what the value of programming is. And the marketplace has been historical, and somebody got a price, and so their typical negotiating tactic is well, we were getting paid X. We now want X plus for the next contract. And it’s always X plus, and that can be — as you’ve seen in the marketplace, that can be in the high single-digits in terms of price increases that people want. What we see is the exact opposite, which is people are watching less of many people’s programmers, and we would say that your price should go down if people are watching less. And one of the big outliers was regional sports in terms of the amount of money they charge and collect versus the amount of people who actually view them. So, we would love to do a deal with regional sports.

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We really like Sinclair the company. We would — it was unfortunate circumstance in that Sinclair did not own the regional sports on our contract was up. And then once somebody leaves our network that wants regional sports, it doesn’t make sense to burden the — because we have less people today on our network, we still have some people that might want to watch regional sports. But it’s a fraction of what it was last August when they came down. So, the programmers have a hard time understanding that once somebody leaves their network, there’s no reason to put something back and tax the rest of people because the people who really watch the channel leave us because they have alternatives. So, the math was clear that the kind of offer we had from the Disney folks at the time that our contract was up was not even close to something that made sense for us.

A lot of times in business, it’s really easy decisions, and some you got to think about. But this was an easy one, and that’s where we are today. And obviously, Sinclair now owns it. We’ve had a great relationship with Sinclair for a long period of time. But whether you can put Humpty Dumpty back together again remains an open question.

Rich Greenfield — LightShed — Analyst

It seems like the math on that would be very hard.

Charlie Ergen — Co-founder and Chairman of the Board

The math actually isn’t that hard. It’s just that the math is different for us now because we have less, right? And they have other customers and other contracts. And so, they get — but the math is easy. We know what it’s worth, and it’s worth less today than it was last year.

Rich Greenfield — LightShed — Analyst

Thank you very much.

Operator

We will now take our next question from Philip Cusick of JP Morgan. Please go ahead, your line is open.

Philip Cusick — JP Morgan — Analyst

Hey guys, thanks. I guess starting Mark and Steven have come on since the last call and Mark started with us around architecture already, but can you or they expand on any other evolutions to the network strategy since they came on-board?

Marc Rouanne — Executive Vice President, Chief Network Officer

Yes. We’ve talked about ORAN. I think this is known now, we have talked about cloud native. Actually another very important thing is automation. The way we are in the labs today and the way we test, we’re not testing fancy or 3GPP features. We’re testing automation from ground up. We have a big green deal automation where we have virtualized network where everything is happening by the milliseconds or the second. We’ve what is called closed loop automation. So for example, you lose a site the rest of the sites are coping for that site automatically and it’s across the board. If you want to slice you have to have a network that is automated and that’s a big differentiator in the future for us compared to existing networks that are not automated. If you want to create a slice in an existing 4G network or new 5G add-on, it’s done manually, you provision, your script. We want the network to do it dynamically. That’s the next big thing and we have had the good traction in automation to be honest, much better than we expected.

Another one is that, we think consumption. We are not building a network and then thinking how do we sell it? Actually we’re starting from older use cases that have been studied for the last three to fiveyears when 5G was defined and we are looking, how would we consume the network based on those healthcare, smart TVs, transport use cases and how do we automate the prices based on that? So it’s a consumption driven architecture. Again we see a lot of traction in the US ecosystem because a lot of people have been doing that for new services. Use cases that everybody knows like the Airbnb, Uber. We just use the same techniques. So that’s what has changed. The last thing is on the open source. Everybody knows about — has heard the Kubernetes containers. These are a bit technical but what is interesting is that we can leverage the US ecosystem around open source. A lot of the things that the Nokia, Ericsson had to build themselves is now completely available to us. More recently a lot of work has started on the hardware side rounded up from security.

When we talk to the enterprises, what do they want? They want to manage their network themselves but they also want to manage their security. And we see ways in the US native ecosystem to have these grounded up security, all the way from the hardware and all the way into the software. So that’s another big thing that will differentiate us. Security will be native.

Philip Cusick — JP Morgan — Analyst

Thank you. Then Charlie– I was just going to say, leaving the current auction aside, obviously, do you see a need to buy more mid-band as CBRS and C-band come available in the next year?

Charlie Ergen — Co-founder and Chairman of the Board

Yeah. We have normally participated I think every auction. We started with the third auction that was ever held. 25 years ago we typically — we’ve always participated. We usually don’t land much if anything. I don’t see that changing. The only other thing I was going to add on Mark. Mark was talking a lot about the enterprise business, which is a different use case of our network. It’s a big part of what networks can do that’s beyond just the consumer. So I think that what Mark is architecting is a network that the consumer will be a big slice of that network and that’s what Boost and everything that Boost does in the future, particularly in postpaid will be a big slice to that network but part of that network also can be used by the enterprise customers in a way that current networks really can’t accommodate. And so that’s another opening. That’s not probably in anybody’s model today. In terms of how we use it and how we’ll generate revenue from the network but certainly the network is designed to be able to accommodate that. I get that typically. Almost every Fortune 500 directors is asking their management what is their 5G strategy. Part of that strategy, if they were– I mentioned would be potentially the kind of thing we’re building. So I just think we’re a different animal.

I’ll tell you one more thing; a lot of analysts get confused with incumbent networks and the cost of building those networks in the past and the cost of maintaining those networks, the OpEx that you have on networks. Some big companies today spend as much money in a year or two just to maintain their networks as we’ll spend to build the network. The reason is the legacy is so hard and so complex and not automated, so you need a lot of people to do it and you have 2G, 3G and 4G that you have to maintain while you’re yet to be backward compatible with everything. But the cost of that is just astronomical compared to more modern network where you see in the IT world you don’t have thousands of people in the data center anymore. You probably can count. In a big data center today you probably count on one hand the number of employees there. In a modern architecture work with automation, we just need a lot less people to run the network and you’re starting to see that. With that clean sheet of paper and you have automation you can do that. So our cost of material is less.

Philip Cusick — JP Morgan — Analyst

That’s helpful. One quick follow-up for Paul if I can. Can you give us an idea of what the incoming Boost EBITDA run rate is going to look like?

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

Well, we don’t really disclose that. We can probably take a look at what platform does and what they do from a subscriber perspective to get an idea of what it may look like.

Philip Cusick — JP Morgan — Analyst

Okay. Thanks, Paul. Thanks, guys.

Operator

We will now take our next question from Kannan Venkateshwar of Barclays. Please go ahead sir, your line is open.

Kannan Venkateshwar — Barclays — Analyst

Thank you. Charlie, just from a business model perspective, when you look at wireless longer term, when you think about all the alternatives available you laid out enterprise right now and there is also the possibility of going wholesale and licensing capacity to third-parties and then there is, of course, the retail business, how do you see the mix evolving in the end state? Do you think retail will be as big a part of your business as it is for the traditional telcos or will that be a much smaller fraction of your overall wireless business, potentially in the end state? Secondly, from a capital perspective, as you go through the process of raising more capital to fund the build-out, do you have any thoughts on capital structure? Would there be a big equity component as you go down this path of raising capital? If you could help us with that that would be very useful. Thanks.

Charlie Ergen — Co-founder and Chairman of the Board

Obviously we’re starting to very — on the retail side of the business, we’re starting at a very low base with approximately 9 million Boost customers. So obviously, versus the 100 plus million that the other 3 incumbents will have. So we’re going to be very low base there. Having said that, we think that that’s a — there is some opportunity in that marketplace and one size doesn’t fit all and with the lower cost structure and flexibility in how we do it, we think there’s things we can do to grow that business. But obviously, we’re not going to be– obviously, we’re going to be very, very different for a long period of time there.

In terms of capital structure, obviously one could certainly foresee that our capital structure could be a blend of equity and debt, depending on where the marketplaces are, and depending on how comfortable we are the business. We don’t have all the answers to everything we’re going to do, but we have 39 years of experience and a management team that knows how to deal with uncertainty and knows how to take advantage of opportunities that the marketplace presents. And we’re going to go where we can be profitable and where we have strengths, and maybe our opponents have some weaknesses, and we — I mean, we’re really good at that. I mean, that’s a core, basic skill this company has, to be able to find opportunities and be creative, and we haven’t lost that. We’ve only enhanced that over the years.

So, it’s never a — every company has challenges. Every company doesn’t have a perfect crystal ball, but this company is really, really good at dealing with uncertainty, and opportunity, and taking advantage of it.

Kannan Venkateshwar — Barclays — Analyst

Thank you.

Operator

We will now take our next question from David Barden of Bank of America. Please go ahead. Your line is now open.

David Barden — Bank of America — Analyst

Thanks so much for taking the questions. Charlie, maybe a little bit of follow-up on that prior question. It came up at the trial that absent a partner, that there were several large banks that would be willing to maybe step up and help finance the project. What would that look like in terms of collateral? Would that kind of be collateralized by the spectrum side of things, even though the FCC has a build-out related foreclosure right? Or where would it have to sit in the organization, if you were to go to the bank to help fund this? And then a follow-up question would be, if and when you do go to the financial industry to try and get this financing, kind of we only have really one number in the business plan today, which is $10 billion to build a network. Is there any other kind of number, or framework, or cumulative amount of operating capital losses, target market shares, anything that you could kind of give so that the street can kind of think about what this business model really might look like? Thanks so much.

Charlie Ergen — Co-founder and Chairman of the Board

Yes. I mean, I think obviously there are — we wouldn’t expect to be raising capital without some kind of detail — in the $10 billion range without some kind of details about where that all goes and so forth. So obviously, we’d do that. But again, the business plan is going to be an extraordinary business plan for the future for those people who think long term, and obviously, there are still a few long-term investors left. Not many, but a few. And this is — certainly, to raise that kind of capital, you’ll have more meat on the bone in terms of the numbers. But the model will probably look better than most people have speculated, and the costs are probably materially less than many people have speculated. It’s just a big paradigm shift. It’s really the –again, going from analog to digital was the one that we capitalized a long time ago, and this one is every bit as big or bigger in terms of virtualizing the network against where legacy companies have a really, really hard time to get there in the short run. They’ll get there certainly in the long run, but they have a tough time in the short run to do that.

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David Barden — Bank of America — Analyst

Charlie, just as a follow-up, you pointed us to maybe Tracfone as a template for maybe what the prepaid business that you’re inheriting might look like. Would you point us to Rakuten and kind of look at their business plan, their capital investment timing, their kind of subscriber goals and such as kind of a template for what you think you can do here in the US? Or are you doing something significantly different than what they’re trying to do in Japan?

Charlie Ergen — Co-founder and Chairman of the Board

With Tracfone, obviously, Tracfone’s not a hugely profitable business. So, I wouldn’t expect that Boost is a hugely profitable business but the part that could be — shouldn’t be a huge problem because we have an NPL agreement for seven years with T-Mobile’s better and better network as they build it out. We have an opportunity to grow that business, particularly since we have user economics coming on the back-end, and we can pull the price. I mean, owner economics that we can pull the price. So that’s a pretty unique position to be in, and we’ll probably have to go into more detail on the conference call of that, but that was unique position to be in.

And then, Rakuten is important in the sense that we’ve learned a lot from them, but they’re really the first company to start embracing kind of an ORAN open architecture system, and it’s been pretty incredible the amount of progress they made in 18 months since we first announced what they were going to do. But their actual start — I think their turn on sometime in the next few months, it’s not two months away, but we learned a lot from them. There’s a few things that we’re going to do differently. The market’s been — the technology has advanced, so we get the advantage of 18 more months of technology with advancements since they had to make some of their decisions. Some of our decisions might be the same as they’re making, but it gives us a really good template to say what did they do right. Where does the marketplace advance from where they started working on, and how we use those things to our advantage?

And so, it’s always a little easier to be the second person, not the first person. They’re going to get a lot more arrows in the back than hopefully we will. But I expect they’ll be very successful in what they’re doing and they certainly are designing the right kind of network for the future. But it’s 4G and so the big thing we get to do is start with 5G. And we started a lot more spectrum than they do too.

W. Erik Carlson — President and Chief Executive Officer

And while there are similarities, clearly, the two markets are vastly different.

David Barden — Bank of America — Analyst

All right. Thanks, guys. Appreciate it.

Operator

Our next question is from Craig Moffett of MoffettNathanson. Please go ahead. Your line is open.

Craig Moffett — MoffettNathanson — Analyst

Hi, thank you. Could you guys comment on the timing of capital investments? It looks like you lowered your capex a little bit for your guidance for this year. I expect some of that may just be the timing of when the deal is closing. But now that you’ve got some clarity about the length of the runway for build-out requirements in the end of the T-Mobile wholesale agreement, how do you think about when you want to make your network best and start making the larger capital investments to get your network built?

W. Erik Carlson — President and Chief Executive Officer

So, you’re right. We didn’t really lower it. I mean, I think we’d always talked about [Indecipherable] and then into 2020. What were you going to say, Paul?

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

I was going to say that the original disclosure was $500 million to $1 billion, and that included all spend in ’19 and in ’20. We just modified it to $250 million to $500 million for 2020. So if you take into consideration what we spent in 2019, we’re within that range there.

W. Erik Carlson — President and Chief Executive Officer

But the big thing, Craig, is that we have a lot of flexibility. So on your timing question, it will be a lot; the first thing we’re doing is our planning and making sure we get our towers in the permitting, that’s kind of a long-haul intent. And so there’s not a lot to build this year because we started — we’ve got to get those permits in zoning, and structural, and all the things, all the civil works that you need to do. And so, we have the flexibility to do that. The second thing is that from a hardware perspective and a software perspective, some of the things that we’re doing is — they’re in production, but they’re not off the shelf today, so we have to wait for those things. But with the T-Mobile MVNO deal, we get a lot of flexibility in terms of timing that we do that. The only flexibility we don’t have obviously in 2022. We’ve got to be in 20% — for our FCC commitment, we’ve got to cover 20% of the population. So, we could — we’ll certainly have all our zoning and permitting done for far greater than that, and then we’ll build accordingly, depending on what were the — what the state of hardware, software is. So again, the good news is we have a pretty big safety net today, and we can now make mistakes and still survive some of our mistakes. We’re certainly working with the net. Sometimes in our company, we haven’t worked with that — we haven’t had a net to work with. So I’m sleeping a little bit better. We got up on a Chinese rocket. There’s not much of a ne. And today, we’ve got seven years of a pretty good net. I don’t see big risk there today. But obviously, we’ve got to go execute, and we’re not going to convince anybody until we — until you see our first market, and you can touch it and feel it, and see why it’s different. And that –we’ll get down within that — hopefully by end of the year, but certainly over the next year, we’ll get that done.

Craig Moffett — MoffettNathanson — Analyst

But am I right? It sounds like, reading between the lines of your answer, that barring the 2020 senior commitments for the build out at the FCC, that your interests are — it makes more sense to back-end load the capital investment, if you can. Is that a fair interpretation of what you just said?

W. Erik Carlson — President and Chief Executive Officer

Every month that goes by, our costs go down, and the technology is a little bit better. So, when you have a paradigm shift in technology, it becomes a sweet spot of how you exercise your decisions in terms of your capital expenditure. We don’t know enough to know exactly where that sweet spot is. My gut feel is we’re going to need to release 16 at 3GPP. That’s supposed to be out in June. That might slip because of the virus and all that, so that could slip a little bit, and then if you’ve got to get in the equipment. So, as soon as release 16 is readily available in the equipment and software, then that’s probably the sweet spot for us. And is that this time next year? Probably, and then we go pretty quick. And so, I think what you’re going to see is the capex being a pretty steady run rate sometime next year, but it’s not very big this year.

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

And Craig, as you know, we have other commitments beyond 2022. So it’s pretty — there’s a cadence to the build-out both in ’23 and then there’s additional build-outs in ’25 and ’26.

W. Erik Carlson — President and Chief Executive Officer

But the big difference is that we will build — we will focus a lot more on city by city. So, there’s obviously going to be some cities that are more interested in getting 5G quickly. And those cities that want to work with us will probably get first priority, and then obviously when we build out a city, we can have owner economics there, so we don’t have to build — we’re probably not going to build two towers in every city. We’ll build out city by city and complete a city before we move to the next city. Obviously, we can build multiple cities at the same time, but that’s a bit of a strategy that we’ll have.

Craig Moffett — MoffettNathanson — Analyst

All right, thank you. That helps.

Jason Kiser — Vice President, Investor Relations and Treasurer

Operator, we have time for one more from the analyst community before we move to media.

Operator

Thank you. We will now take our final question from the analyst community.

[Operator Instructions]

We will begin the media portion of this call following the answer to the final analyst question. Our final analyst question comes from Brett Feldman of Goldman Sachs. Please go ahead.

Brett Feldman — Goldman Sachs — Analyst

Thanks for taking the question. There’s two, if you don’t mind. First one is pretty simple. What’s your latest thoughts on how quickly you’ll be able to close on the Boost transaction? And then second, Charlie, you talk about the opportunity to sell your network capabilities into enterprises. It seems like one of the keys to selling the enterprises distribution. All these big customers have an AT&T rep calling on them. They have a Verizon rep calling on them. They might even have a Sprint rep calling on them. How do you intend to access those types of decision makers, and is that a natural example of where partnerships could be an important part of your strategy going forward? Thank you.

Charlie Ergen — Co-founder and Chairman of the Board

Yes, Brett, on closing the Boost, we’re not required to close until we can provision any new Boost customer on the T-Mo network. I think this public — technically, how many days that is after the [Indecipherable]. Anyway, that should be some — it won’t be simultaneously with Boost — I mean with the T-Mo, Sprint merging because then they have to — once they’re merged, they’ll take a bit of time to make it where we can provision. But they are under a strict timeline for the consent decree, and it’s not a lot of time before we close on that. I think that might be public, but I don’t want to say it if it’s not. And then on enterprise businesses, we would follow the normal philosophy we have that if there exists, as an example, an enterprise sales force that we don’t have to recreate, and we can do something with that sales force, then we would do that. If nobody that has an enterprise sales force wants to be with us, we’ll build it, and we’re prepared to go either way. But our first choice would be to work with somebody who already has enterprise sales force in place. And the good news is that when our competition comes into sell enterprise business, we’ll have a better product. So, it doesn’t mean we’ll get all the business. But I mean, we’ll get our fair share.

Brett Feldman — Goldman Sachs — Analyst

Thank you.

Operator

We will now take questions from members of the media.

[Operator Instructions]

Our first media question comes from Scott Moritz of Bloomberg. Please go ahead. Your line is open.

Scott Moritz — Bloomberg — Analyst

Hey, guys. Thanks. Charlie, as you look ahead to the closure of the Sprint T-Mo deal and your entry into the wireless marketplace, what phones are you going to be able to sell? Have you talked to the two top phone makers where you’d be able to have the latest iPhone and Samsung phones?

John Swieringa — Executive Vice President and Chief Operating Officer

Hi, it’s John Swieringa. I’ll take that one. Obviously, since we announced the deal back in July, we’ve been in close contact with all of the major OEMs. We’ve got the ability to go direct where it makes sense with them, as well as go through continuity agreements through the transition services agreements that we have. And obviously, there’s new line-ups coming out in 2020 with features and things like that. We’re right in the middle of all those discussions, and we’ll be in a position to be competitive at the price level.

Charlie Ergen — Co-founder and Chairman of the Board

So Scott, bottom line, we will have phones. That’s not a risk to our business.

Scott Moritz — Bloomberg — Analyst

Thanks.

Operator

There are no further questions at this time. I would now like to hand the call back to our speakers.

W. Erik Carlson — President and Chief Executive Officer

Okay. Thank you, operator. I appreciate everybody joining, and we’ll talk to you next quarter. Thanks.

Operator

[Operator Closing Remarks]

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