Q4 2019 Earnings Call
Good day and welcome to the Dish Network Corporation Q4, and year end 2019 earnings Conference calls.
This conference is being recorded at this time I'd like to turn the conference over to Jason Kiser. Please go ahead Sir.
Great. Thank you Ashley I don't think we're going to somebody.
But probably not going on from Cowen.
Okay, So mark CEO, Brian because no one slipping personal swain, our CFO dr. under our COO fair enough.
And for the fourth probably.
Everyone, who won or not we'll talk to.
Wireless even bother to promote the Walker office with a lot of so.
Current overcompensate for Boardman, Oregon.
Right. Thanks, Jason Good morning, They're just released during this call that are not students of historical fact constitute forward looking statements that are subject to risks uncertainties and other factors that could cause our actual results to differ.
Surely from historical results and ultimate forecast.
You know responsibility to update in both of these statements.
Information, please refer to risks uncertainties and other factors discussed.
[laughter].
One of the process works and a one of three we filed an application essentially puts its bigger better because of the CPV. It's like would you old will not able to discuss what a spectrum resources, we bid on and they won't be answering any questions on that auction in today's call with that I'd like to turn it over the air Carlson our studio.
Thank you said and welcome everyone.
Well I was always never go moment here and of course, the development with the federal judge the cumulative decision last week.
So he goldberger.
Looking forward is required mobile right.
Because they give you know really.
No.
I expect most no.
A few hurdle between your pardon me.
Notably, a California, you get approval and customer requirements.
Let's start with taking appropriate.
Roger.
Yeah well.
Absolutely working towards your mood Onboarding <unk> business.
Including its dedicated employees.
So partner and a seamless transition through everything out of these customers.
Got a world can talk with what drives that came over from all of it doesn't really kick into overdrive is good.
You are preparing for entry into the retail wireless state does it stay on top of the day to day business.
Thank you it's hard for director effort and focus I'm confident that a preparation will serve us well.
Toward your clothes continue our build out.
Yeah I'll cover our goal is it fair competition as well as America's leadership in Boston.
I'm talking about getting the drops off just our entry into retail wireless the progress on apologies broadband network.
But at least observations on the quarter before I turn it over to fall.
Personally this dog burden you remain dedicated to pursuing like customer and then once you ought to be in delivering.
Then service technology.
It's a strategy that has been a yielding adult for us over the longer term, but I'm pleased with the direction.
Overall I could just concur.
And its ability to subscribers in the quarter, we tell her thousand net subscriber losses there.
Looking back to the year ago curious about 334000 that subscriber.
Look it's not quite an apples to apples comparison were facing a different set of program. So there's lots through the we are now.
That said I do believe that.
Tough quarters results reveal our continued focus sobriety that operational discipline dark the acquisition as a function.
So it doesn't do a REIT customer right geography philosophy, I think incredible continue indefinitely the hopper platform.
Do you ever user base.
That was in a quarter, we announced integrations with Amazon upon.
Knocking off all the hopper isn't good enough told everybody knows more about lap <unk> platform.
The improvement for later scored values out work every day to deliver across the business, but this TV.
When we started the house, we continue to pursue acquisition pricing in delivery of overall value.
Well, we saw an annual net sub growth.
The 174000, we didn't lose 94000 customers in the quarter compared to electing to 47004th quarter last year.
A few points others to consider obviously the stripping out the ecosystem is changing quite a bit.
The dynamics of the broader t. market trends late last year with the worn down until you.
And the introduction of Giftable stream providers that lost with a graphical aggressive promotional offer.
Our goal worrying if the dropped like focus of user experience.
Overall value was placed in the spring because system placement for Standalone solution for men, but our and our focus our best of luck is really a perfect complement for the growing crowd of that thought player.
Recognizing we'd have to lead and customer experience.
Okay, that's often real flexibility at the best price point.
And you can see that's going to be honest features and functionality, we brought the servicing fourth quarter, including expanded not a live news offerings that are critical to Fox news to report.
Oh I'm club you ought to provide the consistent experience.
For all.
Drivers, including so both blue add on services.
Up there to care to line up and built out of it will be Orange services.
What do we see flooring well positioned to perform in the dynamic marketplace, but we are we often execute so before we would view there, let's turn to Paul Orban up yourself with brief remarks about financial quarter to quarter.
Great. Thank you, Eric our fourth quarter fish gross ads are up roughly 40% year over year, and we continue to activate high quality subscribers. However, swing law subscribers for the first time ever due to increased competition and disconnects relating to the football season.
And looking at the piano, our operating income in EBITDA for the quarter are both up compared to last year, primarily due to improve margins.
Our 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 just PV is Q1, 2019 price increase and our continued focus on acquiring and retaining high quality subscribers.
Addition, swing benefited from increased advertising revenue.
Our subscriber margins for the quarter were positively impacted by a higher quality subscribers and reduce costs related to travel mobile, including reachable regional sports.
However, we continue to face long term pressure from programmers, who want higher and higher rates, even in a base decline viewership.
There's TV Soc is up this quarter due to increased subscriber activations. However, the copper activation decreased slightly to $850 from 861 year over year.
We continue to supply a greater percentage of our new customers with hopper receiver.
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 in 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, satellites are now capitalized on our balance sheet and are being depreciated over the remaining useful lives.
No longer my cash payments to Apple store, they used to be satellites, which positively impacts both EBITDA and free cash flow.
Junior expenses were up this quarter as a result costs to support our wireless your initiatives and legal fees.
Despite increases in wireless Capex in fact, this generated $1.18 billion in free cash flow in 2019.
During the fourth quarter, we completed the rights offering raising approximately $1 billion.
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.
Due to 1.1 billion dollar debt maturing in May.
And fund our wireless initiatives for 2020 with cash on hand.
Our 2020 wireless expenditures are currently expected to be between 250 500 million.
As we said before we'll be opportunistic and accessing the capital markets.
Finally, I have to Eric and saying how excited we are could begin serving goes customers.
The last few months, we've been working with the boosting preparing for the clothes and afford to then joining that this family.
With that I'll turn it over for questions operator.
Thank you we will now begin our first acuity session.
The security session is for members of the I'm This community.
Well take our first question from Jochen Richardson of Credit Suisse. Please go ahead.
Oh, thanks, so much totally there's been a lot of interest that's what are your children out at some point.
Anchor tenant or founding partner.
Gee wireless network build out in particular discussions are like it went Amazon or other tech platform.
Oh, the topic, you're going to share or you know with investors at this point it might be helpful to understand just your thinking.
You know on time frames, whether it's whether it's for anchor tenants or or raising financing. It seems like you have a lot of flexibility about all this assumes a a T mobile a friend quote for or any thoughts about would be helpful. My but a couple of quick follow ups on New York.
<unk>.
And then like that.
Were you think that sprint T mobile closing so [laughter].
No at this point.
Nothing that nothing's really changed in terms of what our strategy as we.
Or where.
We look at strategic partnerships or number of read ways not always your financial but certainly were.
Structured debt you don't have to rebuild it we can partnering with somebody who's got infrastructure things like you know, we'd rather do that it if nobody wants to.
The.
Okay like something that makes sense for all parties, and obviously with the bird to build up and listen to yourself.
In terms of anybody that.
We look at strategically we the first step is that they've got to be aligned.
Our view.
And our vision of where.
It was can go and.
You know we have a pretty.
So I would view of where we think wireless can go to materially different in terms of architecture, where networks are today.
And.
It's not it's very small hurt the.
When we started the digital satellite we watch all satellite when a 100% digital world that what was predominately analog and power cable industry was analog it was 1995 as 2009 before that.
Everyone digital.
I'm kind of thing.
It's in place today.
Okay.
I think it.
That's good but our company not the first time, we started working on wireless and you're going at it for a long period of time and we did put in lot of building blocks of Weisbord. We know we have a different way to.
The building that work in a lot less exposed they'll do not work a lot less expensive to operate the network Oh people because of automation.
<unk>.
Okay.
Network is primarily software and on the cloud pushes people hardware norms today.
The fact that you can.
Embrace open standards.
Just a difference you sort of different models. So you put those things together, obviously, we'll share so most industry, but today's focus to make good but Tom talked about we're just days focuses.
The short answer is you're not could get a lot of information on strategic partnerships and all that from the call you guys always want but.
No no you'll know.
Whatever.
You know, it's that's certainly not yeah 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 that is ramped further.
With the judges ordered last week.
It's probably a shorter list of who were not talking too, but we don't feel any particular urgency around a striking a strategic partner a partnership at this point, our our focus as Eric said is prepared to integrate the booz business. So we're operational day one.
I can focus is to finalize the architecture of the network, which markets even had been working on for several months and we're encouraged by the progress third area of focus is to you know we have.
Integration work occurring right now in multiple labs around the country with various sets of vendors into the third area will be to narrow that down and move into a contract finalization with key vendors and then the fourth areas to plan deployments.
You know, where we what 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 the beating them because once we unleash a you know 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 NVNO any income.
That will be a incented to price aggressively compete aggressively.
Hi, Paul very helpful. Thank you as a quick question on sling or looking at the fourth quarter.
Should we be extrapolating <unk> full year results as we look forward for slowing or the fourth quarter suggest any kind of change in strategy or broke impediments that we should be considering.
I think there this is borne by the way I think there are lot of different.
Does that in a laptop playing a game so I think extrapolating might be dangerous.
We had a price increase in email shifted our channel line up.
Doesn't include arsonists anymore. So.
Like our position, we like our skinny bundle.
We may not be everything to everybody.
So like where we are and where we're taking a disciplined approach.
Okay.
Thank you all.
Okay.
[noise] when they take your next question from Michael Rollins Fishy. Please go ahead, Sir your line is open.
Thanks couple of question first I was wondering if you could expand a bit more on the cloud native solutions to the wireless is how that differentiates the cost.
And my good friend sheets that customer experience.
And also.
Your testimony.
That was I guess, you said I forgot the transcript apart that were not reacting referred to the business model.
Bracing bundling and I was wondering if you could expand upon what are the types of bundles that you could proceed for the wireless business. Thanks.
Yeah on the first question. This is mark who on the architecture. So the close maybe first of all we've been testing and looking at the cloud and order software now we are going to use each cloud native.
Cloud Native means you can put it into cloud or you can put it on premise where you want it really scared that cannot be it will be a.
After through the different usage, Matt why is there a difference for the end user actually when you cloud maybe even within seconds you can adopt.
New service.
Right because you can move the work the software you can adapt if you didn't configurate and do a good way to think of it is the catalog of services you see on eight other U.S. or is your they do that for the Datacenters, We love that same type of.
Nathan software kept I know that certainties that you're getting big stitched together and a slight do any use case right. So the capability to differentiate these he's very be the other thing is that of course that caused a different because now you are in data centers you are on the will brokers.
Hardware or you are using the opens doors stocks.
So that's what makes a difference as GDP speed and adapting people use case.
This is Charlie I can't remember the correct. The question was talking about bundling and perhaps and bundling one I'm not sure.
And on your customer has been done around customer out there right.
Like I think.
I'm not sure exactly I don't remember exactly all my testimony, but you know from a bundling perspective, we have a chance to have more customer relationships and we do today, obviously would move out of more rural but more rural centric business to get more urban business.
And then so.
Oh, a variety obviously video is a is a big part of what we do it but we also went home services. We also are able to connect people in a different way. So there's a number of things will be able to do the big picture is what I think dish is on a gross is now.
We put a lot of investment over the last few years to put herself in position that as linear TV declines we had another another engine to the to grow the business and we're now in that situation. So.
It's very similar to again, it's very summer was willing to lend the big this business and analog business and we saw that business declining.
Four or five years before anybody else and they were prepared with with digital Oh digital broadcasting when the time game and we were able to take to grow our business exponentially over where it had been before and I think we're in a similar situation where were now.
We're able to to grow our business and and and.
In the wireless side of it but it wasn't clear to growth in video because a lot of the traffic. They will go across our network. In fact, the majority of the traffic across one that will probably be video.
Thank you.
We will now take or next question from John who live.
Please go ahead, Sir your line is open.
Okay great.
First of all three six any more detail you can give us off of your go to market strategy.
The prepaid market or postpaid markets in terms of pricing distribution.
Wouldn't wouldn't we should expect to see you guys to enter those markets and then as part of the deal you had talked about 20000 towers and a bunch of a retail locations for sprint Ah I was wondering if you've done like how much do go just on those sites and if it's a big benefit for you and do you expect to utilize in any of these are any of these assets going for.
Thanks.
Oh, the we're not ready work, we're not ready to.
The disclose our go to market strategy, obviously why would plywood why we're not that's.
We're not very smart, but we're not that stupid.
Was that the obviously the towers in the stores or potentially positive.
Particularly the towers in the sense of it frees up.
The models not allowed to squatters on the towers, and obviously towers, a big part of how are things that we're going to need and so they're required to give us notice when they're going to vacate entirely probably helps on the margin on or build out.
And.
And perhaps reduces some of our cost.
Yeah, the decommissioning of spread sites will likely make available red centers that are at an attractive heights to us so.
There's a rolling forecasts that they have could provide to us as to when they intend to vacated tower.
Yeah, I think that that's a big picture is that.
Because we have used to the Timo will network for seven years, along with them the towers and and so forth.
In a pretty big Safetynet. It gives it gives you know.
Mark and Steve I'm, a little bit more leeway in terms of how we build on that where we can take a few more chances. We we can we get experimental or that we can use some but we can use some providers or maybe aren't household names that have done a great things in the lab or great things in other parts of the world, but really haven't been factors.
Our household names the United States that gives us a lot of a lot of they'll do that one of the things that maybe markwest, Doug, but we have we have made to determine architecture that we will be an old ran compatible network with a seven to split so that is that's something that's on the big guys don't do that none of that none of them in common doing United States today, but.
That is that is without question the way a modern next.
And that work should be Architected and once you architect it that way it opens up a whole different set a range options, which are important in this country right. When you when you start looking at some of the security concerns of this country with.
With the Chinese vendors and things like that there's not the weight of the way the way to compete as to build a better network not to build saying the same that we're using old technology I hope you want to comment on that little bit mine.
Yeah. So we've been working on will run bad for the last few months and now we see that the market these getting ready for us and actually for other operators as well that's the big trend in the industry everybody's working towards will land.
You May wonder what do you feel like it's very simple you pick something on top of the math. That's your they do and then you can do whatever you want them to rest of the network, we never impact again your regular.
So you can choose the vendors, but you're going to move slab long term sustainability of you're right you deployments, whereas today, that's delayed dual you touched a tower or decide to touch the network and that's why it's too lengthy to bring new stuff into existing networks. We won't have the problem. Once we did the regular there will be one chloride and weekend.
They did we can change the software as fast as we don't.
Great. That's helpful. One last question any progress totally on the negotiations with T mobile about leasing on the 600, others, we've got a potential.
So it's a cash go vote.
You want to.
No we have no current update on that.
Okay. That's can provide.
Gotcha Okay.
[laughter].
When they take our next question from Walter.
Like Church. Please go ahead, Sir your line is open.
Hey, it's rich Greenfield for walked you wanting me to ask a couple of wireless questions then I Gotta media question.
Lee first on wireless Charlie you would you be opportunistic in accessing the capital markets I think if we go back your core testimony.
Were asked about a $1 billion alone from Softbank, which would provide working capital.
Because they can issue at a lower rate is that still available to you.
I'm sorry.
Well, thank has made a commitment to us to.
So that's been a and and in a small part of the financing of up to a billion dollars. Then so yes that is available to us the net effect of that is it just it would it would reduce our [noise].
It would result in reduced our interest cost and the lower than otherwise would be.
But.
Help me, it's not it's not a billion dollar it's not a billion dollars the capital for US we took it to pay it back but it does reduce our.
What reduce our interest.
The expense.
Then on on the media side of the how it just your satellite sub losses seem pretty minimal given the amount of programming variance from the regional sports networks that you drop that we continue to calculate you're saving over 400 million a year on not having those are a sands you've lost at most 30 to 40 million it looks like of EBITDA from the south.
Up 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 you should be not in the artist then business unless they're on a tier.
Can you give you a lot of flexibility of how you tear them going forward.
Without minimums is there any other way to look at this time does retrans with Sinclair ultimately change. This and then just the last question kind of a big picture as you think about de TV in dish. It seems like there and increased trouble on Directv side any thoughts you could share given the governments.
I guess a men ability to large scale transactions does this make you rethink about dish and Directv at some point.
Yeah, I know the Cup I mean, a couple of things will start with this Directv.
Probably.
Inevitable that those two should go together just because.
The.
The the growth and in TV is not coming from linear satellite TV providers is coming from.
Huge programmers and joined our company so.
I think the regulatory environment, usually behind the marketplace, but I think that becomes increasingly likely that that that makes logical sense, having said that obviously that they're still.
There's still could be reflected Tory issues, there and at a you know that to see how that all develops but but you know that that's amazing.
Maybe the each company only has two subscribers when you put them together, but eventually those people probably got but that's going to make some sense. Because you can you just can't.
You can't swim upstream.
Against a real tied up.
Over the top big players.
I forgot what the first question, while some regional sports the.
Well look at everything we do here is somewhat mathematical on that so we have real data for long.
What our customers watch.
And I don't think it takes real rocket science does anyone customers watching how much they watch what the value for programming is and the market. The marketplace was met historical and that's something that.
Somebody got a price and so they are typical negotiate and tactic is.
Well, we were getting paid acts we now what tax plus for the next contract and that's always X plus and that can be as you see in the marketplace that can be into high single digit.
In terms of price increases of people want.
What we see as exact opposite which is people are watching glass.
As many people's programmers and we would say that that your price should go down that people are watching lesson and one of the big one of the Big Outliers was regional sports in terms of the amount of money they call it they charge and collect.
Versus the amount of people, who actually be on so we would love to do a deal of regional sports, we really like Sinclair the company.
We would love it always was unfortunate circumstance, then that that Sinclair did not own the.
On the regional sports when our contract was up.
And then once somebody once somebody leaves our network the once regional sports.
It doesn't make sense to burden to the Gulf, we have less people today and aren't aren't on our network. We still have some people that might want to watch regional sports, where it's a fraction of what it was last August when they came down so the programmers.
Hello.
I have a hard time understanding that once somebody leaves our network.
No reason to put something back and tax the rest of people because the people who went up.
People are really watch a channel leave us because they have alternatives. So.
You know it.
Yeah. It done the math was the map.
What is clear.
The kind of.
Offer we had from the Disney folks.
At the time of it.
Contract goes up was not even close to something that made sense right. So when you know there's lot of times and business was really easy decisions.
In some funds you got to think about but this was an easy one and you know that's where we are today and obviously I.
Sinclair now owns it had a great relationship for Sinclair for a long period of time.
But whether you can put humpty dumpty back together again remains an open question.
Seems like a map on that would be very hard.
The map actually isn't that hard it it's just that the math is different for us now because we have less.
Right and they have other customers other contracts and so they you know so it gets the map is easy we know what we know what it's worth.
Yeah, that's worked towards less today than it was last year.
Thank you very much.
Ladies and they take your next question from Cusick Jpmorgan. Please go ahead.
Something.
Hi, guys. Thanks, I guess, starting Mark and Steven have come on since the last call them 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 onboard.
Yes, so we feel good about it will run I think he sees no no we've talked about close Nike.
Actually another very important thing is information.
The way, we got into labs today, and the way. We did these were not tasting fancy or three GPP features we basically motivation from ground up.
We have been Greens, you know do nature, and where we have a Dutch less network, where everything is I've been in by door, I guess, maybe seconds or over the second.
Weaker, but what he school group with a major until like a couple of you lose a site a the rest of the sites are hoping for that dogs.
I think.
And if it's across the board right. If you want to slice you have to ever need work that needed to make it and that's a big differentiator in the future for us compared to existing networks that are not looked to me if they are.
If you want the greatest slicing and existing Ford you made work or elsewhere.
The new Fiveg here I don't it's still manually.
You probably get in there you use creep.
We want to network to do a dynamic so that's the next big thing and and we have had the good traction on information to be illness, much better than we expected.
Another one is that we think consumption. We we're not building at work and then thinking old BG elderly Sally.
Really starting from older use cases that have been studied for the last three to five years. When the fight GE was defined and we're looking how would we consume the network based on those healthcare smarts Tbtu transported use cases, and how do we can make decisive based on that so it's a it's a good.
Assumption driven up you Victor and again, we see a lot of traction in the U.S. equally system, because a lot of people have been doing that.
The new services.
The use cases that everybody knows that IDR VNB you'd though there are we just use the same techniques.
So that's what I've changed the last evening, so on the open source.
But he knows about as heard there.
Because then it these containers.
These are a bit.
The people, but what is interesting is that we can leverage the U.S. ecosystem around that one source and a lot of the things that the Nokia eiriksson that build themselves.
No I'm not completely available to us.
And Doug and more recently and lot of work has started on the hardware side the rounded up from security when when we talk to the until prices you know what do they want they want to manage your mid work themselves, but they also want to manage their security and and we see a wage Andy.
In the U.S. made these ecosystem to add these rounded up the security.
We're going away from from the hardware and all the way into a the focus docs. So that's another big thing that we differentiate us.
Security would be Nate.
Thank you.
Charlie I'm like Okay go ahead.
Got it twice.
<unk>.
I was just gonna say, leaving the the current auction aside obviously.
Do you see a need to buy more mid band as CBRN. She band come available in the next year.
Yeah, we we have normally participate I think every auction we started with a third auction that was ever held 25 years ago. We typically participate we have always participated we usually don't lend much if anything.
I don't see that change it.
I'm, sorry, I interrupted you.
<unk>.
Anyway.
If you got gets answer here the only other thing I was going to add on on Mark Mark was talking a lot about the enterprise business, which is a different use cases of our network.
It's a it's a big part of what networks can do that's beyond just the consumer so.
I think that what.
What Mark is Architected isn't that work they said that the consumer will be a big slice of that network and that's what boost and then everything the boot does in the future, particularly in postpaid will be a big twice and I work with that part of that network. It also can be used by the enterprise customers in a way that current networks, where they can accommodate and so.
Thats another open that's not probably anybody's model today.
In terms of how would you use it and how will will generate revenue from the network, but it certainly certainly the network is designed.
To be able to accommodate them and and we [laughter].
Falling I guess I did just like almost every fortune 500 companies board of directors is asking their management what is their fiveg strategy and part of that strategy. They were omniscient would be.
Potentially the kind of thing we're building.
I I, just think or different animal and I'll say, one more thing a lot of analysts get confused with.
With incumbent networks and the cost of building those networks in the past and the cost of maintaining those networks. The opex, but you have for networks that the the some big in Congress did I spend as much money.
And a year or two there's to maintain their networks as well as we'll spend to build the network and the reason as it.
Is it the legacy is so hard to and so complex and so and so.
And not automated so you need a lot of people to do it.
And do you have TG threeg and Fourg that you have to maintain law you said, we backward compatible with everything so the cost of that's just astronomical compared to more modern network, where you see I T World.
You don't have thousands of people in a data center anymore, you, probably can cat and a big data center to that you probably can't on one hand, the number of employees there and at a modern architecture.
With automation, we just need a lot less people to run the network and you know you're you're starting to see that another.
Definitely need to pay plenty of automation you can do that so arc our cost are materially less.
That's helpful. One quick follow up for Paul if I can.
Can you give us an idea of what the incoming <unk> EBITDA run rate, there's going to look like.
Well [noise].
We don't really disclose that.
You could probably take a look at what Tracfone does and what they do some a subscriber perspective to get an idea what it may look like.
Okay.
Thanks, Paul I guess.
Even though take your next question from kind of in <unk> of Barclays. Please go ahead, Sir your line is open.
Thank you.
He just from a business model perspective, if you look at wireless not linked.
Okay.
When you think about you to all you're doing it is available you laid out and appreciate now I mean, there's also the possibility of going wholesale in licensing capacity to third parties and then there's of course the retail business.
How do you see the mix evolving you'd be interested and do you think retail will be agile as big as big a part of your business as it there's sort of traditional vehicles are little that'd be a much smaller fraction of you'd overall barnes business potentially ambient state.
Second thing from a capital perspective.
As you go through the process of raising more capital to fund the big out.
Do you have any thoughts on capital structure.
Would that be a big equity component as you go down just back of raising capital. If you would have pets with that that would be useful. Thanks.
Well.
Obviously, we're starting to vary.
From the retail side of the business were started with very low base.
With approximately 9 million boost customers, so obviously versus the 100 plus million that the other three and comments, we'll have said, we're going to be very low base there.
Having said that we think we think that that's a there's some opportunity in that marketplace and one size doesn't at all and and with a lower cost structure and flexibility in how we do it we think there's things we can do the to grow that business, but obviously, we're not gonna be obviously, we're going to be very very very distant fourth.
For a long period of time there.
In terms of capital structure, you know obviously.
I want it certainly.
You foresee that our capital structure could be a blend of of equity and debt.
Depending on where the market places that aren't independent on how.
Comfortable where we are at their business didn't we don't have all answers that everything we're gonna do.
But we have 39 years of experience and the management team that knows how to deal with uncertainty and knows how to take advantage of of opportunities that the marketplace presents and we're going to go where we can be profitable and where we can where we have strengths.
And maybe our opponents have some weaknesses and.
Yeah I.
They get where we're really good at that I mean, what's a core basic scale. This company has.
To be able to find opportunities will be creative and we haven't lost that we've only enhance that.
Over the years so.
You know it's never a every company has challenges every company doesn't have a perfect crystal ball.
But this company is really really good dealing with.
Uncertainty and opportunity and taking advantage of.
Thank you.
Okay.
Please move to your next question from D. that burden of Bank of America.
Okay. Thanks, so much for taking the questions.
Charlie maybe a little bit a follow up on that prior question. It came up at the trial the absent a partner.
There were several large banks it will be willing to maybe step up and help finance the project what would that looked 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 banks to help fund this and then.
A follow up question would be.
If you said when you do go to the.
Financial industry is trying to get this financing kind of we only have really one number in the business plan today, which is $10 billion to build the network is there any other kind of number or framework, where cumulative amount of operating capital losses target market share is anything that you could kind of give sort of to the street can kind of think about.
What this business model really might look like thanks, so much.
Yeah, I mean, I think obviously, but obviously or are we wouldn't expect to be raising capital that some kind of.
Detail.
$10 billion range without some kind of detail about.
Out where that all goes in and so for Us August.
Do that again it the business plans going to is gonna be extraordinary business plan for the future for those people would think long term and obviously there are still see long term investors left not many but if you add them.
This is this is a.
You know certainly certainly the raise that kind of capital you'll have more made on the bone in terms of.
The numbers, but but.
The model, we'll probably look better than most people.
I have speculated.
And the cost are probably materially less than that many people speculating.
Okay.
Let's just do it.
[laughter].
It's just it's just a big paradigm shift.
It's up and it's really the.
Yeah.
Going from analog to digital was the one that we we capitalize a long time ago and this one is every bit as bigger bigger in terms of virtualizing their network.
Against where legacy companies ever really really hard time.
To get there in the short run they'll get there certainly in the long run, but they have a ship a tough time in the short run to do that.
Just Charlie just as a follow up you pointed us to maybe tracfone as a template for maybe what the prepaid business that your inheriting might look like would you pointed out to two rackley 10, and kind of look at their business plan their capital investment timing, there, they're kind of subscriber goals with such as kind of a template for.
Do you think you can do here in the U.S. or are you doing something.
Significantly different than than what they're trying to do in Japan.
And what would Tracfone I'd say just color, obviously track Tracfone is not a hugely profitable business. So I wouldn't expect that.
Just as a hugely profitable business, but.
The part that the part that could be I should probably legend.
Having an 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 backend. If we can forward price owner economics, I mean owner economics that we can we can forward price so.
[laughter], that's a pretty unique position to ban will probably have to go into more detail in the conference call that but but that the unique position to be and.
And then a rocket down as it is important in the sense that we've learned a lot from them and they're really the their first company just started embracing kind of an old Rand.
Open open architecture system, and and it's been pretty incredible amount of progress was made an 18 month.
First the bounced.
What they were gonna do but there but their actual.
They're start I think that turn honest sometime in the next few months if not for three months away, but we learned a whopping them. There's a few things that we're going to do differently the market and the technology is advanced so we get the advantage of of course 18 more massive technology that advance since they had to make some of their decisions.
All of our decisions might be.
Same as they're making but it gives us a really good template.
To say what did it wasn't what did they do right, what whereas the marketplace advanced from where they.
Started working on how do we use those thanks to our advantage and so it's it's always a little easier to be the second person not the first person theyre going to get a lot more arrows in the back then but hopefully we will.
But I expect there will be very successful.
What they're doing and they certainly are are designed the right kind of network for the future, but its fourg until we get big thing we get to do is just start with Fiveg and we started a lot more spectrum and make it to the world. There are similarities clearly the two markets are vastly different.
Got it alright, thanks, guys appreciate it.
Our next question is from Craig Moffett of Moffettnathanson. Please go ahead.
Something.
Hi, Thank you.
Could you guys comment on the timing of capital investments.
Thank you lowered your capex.
Little bit for 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 buildout requirements and the end of the T. Mobile wholesale agreement how do you think about when you want to get your make your network that.
And and.
And start making the larger capital investments to get your network, though.
Yeah, So you're you're right.
Let me review, we didn't really lowered I mean, I think we'd always we'd always talked about a billion dollars a nice I.
I never branded IP, and then and then into Twoq 2020, what we're going to say Paul I'd say the original what disclosure with 500 million 2 billion and that included all spend in 19, and 20, which is modified it to 250 to 500 million for 2020. So if you take into consideration that we snags in 2019 within that range yeah.
But the big Big thing Craig is a we have a lot of flexibility. So on your timing question it'll be a lot. The first thing were doing as our planning and making sure we get our towers in or permitting that's kind of along Paul Mccann and so there's not a lot to build this year because we started we've got to get those permits and zoning and structural and all the things all the silver.
Works that you need to do and so we have flexibility to do that the second thing is that the hardware perspective, and a software perspective, some of the things that we're doing as part of our.
Sure Dan production, but they're not off the shelf today. So we have to wait for those things, but what the T mobile.
And being out there we got a lot of flexibility in terms of timing that we do that the only flexibility we don't have obviously isn't in.
2022 data being 20%, perhaps if he can mental we've got to cover 20% of the other population so.
We could.
Well, well certainly have autozone in permitting done for far greater than that and then we'll build accordingly, depending on what were the worth what the state of hardware software is so again the good news is a pretty big safety net.
Today.
And we can make.
We can now make mistakes and still survive some of our mistakes when we're selling working with the net.
You know sometimes in our company. We haven't worked at that we haven't had a net to work with so.
I'm sleep, a little bit better you know Weve got up and Chinese rocket, there's not much of a net.
And you know today today, we've got seven years.
Good yeah and.
You know sort of.
I don't see any big risks there today, but you know obviously, we've got to go execute and.
We're not you know, we're not going to convince anybody till we.
Well you see our first market you can touch it and feel and see lots of different.
That will get done within that hope also got into the year, but certainly over the next year, we'll get that done.
But am I right it sounds like reading between the lines of your answer that bar barring that.
2022 commitments or the gold out at the FCC that your interests are it makes more sense to backend loaded capital investment. If you can is that fair interpretation of what you just that.
Every every month that goes by our costs go down.
And the technology is little bit better so when you're when you have a paradigm shift in technology becomes a sweet spot sweet spot.
How you exercise your decisions in terms of capital expenditure, we don't know enough to know exactly.
<unk>.
When the sleepwear that sweet spot is my gut feel is you know we're gonna usually 16, a threed you'd be that's supposed to be out in June that might slip because of the virus and I'll answer that could slip a little bit and then if he's got to get into equipment. So as soon as release 16 is readily available.
The equipment and software then that's probably the sweet spot for us.
And if that's you know.
Is that this time next year probably.
And then we go pretty quick and so I think what you're going to see is.
As the Capex, we had a pretty steady.
Run rate sometime next year, but that's not very big this year.
And Craig as you know, we we have other commitments beyond 2022, so it's pretty yeah, there's a cadence to the build out both in 23 and then there's additional build up from 25 in 2006, but the big differences. The big difference is that we will build we will focus a lot more in city by city.
So there's obviously give me some cities that are more interested in getting fiveg quickly.
No cities they want to work with US, we'll 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 bill, we're probably not going to build.
Two towers and every city will well well bill that city by city and completed city before we moved to the next city.
Obviously, we can build you can build multiple six at the same time, but that's it that's a bit of a strategy that while.
Alright, Thank you know.
Operator, we have time for one more from analyst community before we moved to media.
Thank you.
We then they take a final question from the on this community members of the media on the call. Please press Star One H. Institute ask a question to begin the media portion of this call. Following the answers to find out on this question. My final question comes from Brett Feldman of Goldman Sachs. Please go ahead.
Thanks for taking my question is too if you don't mind first one is pretty simple or what's your latest thoughts on how quickly you will be able to close on the boost transaction and then second Charlie you talk about the opportunity to sell your network capabilities into enterprise wins.
It seems like one of the keys to selling enterprises distribution. They all these big customers have an 18 t. rep, calling on them. They have a Verizon rep, calling on them it 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.
If your strategy going forward. Thank you.
Yeah right on the closing a boost.
We're not required to close until we can provision.
The new Booz customer on the Timo network.
Yeah.
I think this public technically how many days that is after that and again.
Anyway that.
That should be summed it won't be it won't be simultaneously with with boost I mean with the Timo sprint merging because then they have to once their merger thinks it's just a bit of time to.
The kids, because I get the where we can provision, but they they are under a strict timeline for the per there a descent consent decree that it's not a lot of time before we close on that.
That might be public, but I don't say if not.
And then on the on the on enterprise businesses, we would fall the normal philosophy, we have that if yep.
There exist as an example enterprise salesforce that we don't have to recreate and weak and we can do something with that sales force.
Then we would do that if nobody that hasn't enterprise salesforce wants to deal with us well build it and we're prepared to go either way.
Our first choice would be to work with somebody who already has a enterprise.
Pill for some place and the good news is that when our competition comes into sell enterprise business will have a better product.
So.
No. It doesn't mean will get all the business, but we'll get our fair share.
Thank you.
[noise], even they take questions from them enough to meet yet again, if you remember us to media like ask a question. Please press star one no chance to keeps asking questions. My first question comes from Scott.
Please go ahead your line is open.
Hey, guys. Thanks.
Charlie as you look ahead to the closure of the.
Timo deal in your entry into the wireless market.
What phones, you're going to be able to sell if you talk to the two top.
Phone makers, where you'd be able to have the.
Later, I phone im answering phones.
Okay.
Hi, John swearing go pick that one obviously since we announced.
The deal back in July we've been in close contact with all major Oems.
We've got the ability to go direct where it makes sense with them as well as go through continuity agreements.
The transition services agreements that we have.
I mean, obviously, there's been lineups coming out in 2020.
Features and things like that.
All right in the middle of all those discussions and we'll be in a position to be competitive at the bus level.
So the bottom line, we will have phones or if that's not a risk because our business.
Thanks.
And there are no further questions at this time.
Back to our speakers.
Okay.
Thank you operator, I appreciate everybody joining and we'll talk to you next quarter. Thanks.
Ladies and gentlemen that competes cool. Thank you for your participation you may now disconnect.
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