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Analysts: DISH CEO change signals pay TV health; Wireless uncertainty remains

When it comes to being CEO of the company he co-founded, DISH Network Corp.'s Charlie Ergen does not like to overstay his welcome.

DISH said Dec. 5 Ergen has stepped down as CEO of the company to focus on the wireless business. The move is reminiscent of 2011, when Ergen relinquished his CEO role only to reclaim it roughly four years later when DISH's satellite business was struggling. Now, analysts said because DISH's satellite operation is largely back on track, Ergen is free to focus on the part of DISH's business that still needs the most attention: wireless.

In an interview, Kevin Roe — a senior analyst and founder of Roe Equity Research, who has been covering the telecom, cable and satellite industries for more than 20 years — said he does not see the shift in Ergen's title as "a dramatic change" at the company, especially considering Ergen is retaining his role as DISH chairman and newly appointed DISH CEO Erik Carlson will continue to report to Ergen.

SNL Image
DISH Chairman Charlie Ergen
Source: DISH Network

"Charlie Ergen has always been in charge and is still in charge, regardless of title," Roe said.

Roe views the move as a clear sign Ergen believes DISH's satellite TV business is back on course. "Being CEO of the TV business … that was an interim, temporary title that [Ergen] took when he saw the satellite TV business needed more of his attention and needed to make some changes. Those changes have taken place," he said.

This is in line with comments Ergen made during DISH's most recent earnings conference call. Speaking Nov. 9, Ergen said that by having moved away from chasing less-lucrative customers with steep promotions, DISH has been able to "stabilize" its core pay TV business. "I'm not saying it's a linear business or a growing business, but I think we're on firmer foundation than we were a couple of years ago," Ergen said during the call.

For the third quarter, DISH added roughly 16,000 net pay TV subscribers in the continental U.S., though the company ultimately reported a net loss in subscribers for the period due to subscriber disconnects in hurricane-ravaged Puerto Rico and the U.S. Virgin Islands.

With the TV business on more solid ground, Roe said Ergen can focus his time and energy on wireless. "Even when he had the satellite TV CEO title, Charlie Ergen's No. 1 priority is and continues to be the wireless side of the business," Roe said.

Since 2008, DISH has directly or indirectly spent more than $21 billion on wireless spectrum licenses and investments. Ergen has said DISH will utilize this spectrum through a two-phase network build-out plan. The first phase involves a narrowband network specialized for low power machine-to-machine communications. This network will be designed to support the internet of things. The second phase will be to layer in next-generation 5G connectivity as the technology advances and hardware becomes available.

Tim Farrar, principal and founder of the consulting firm Telecom Media and Finance Associates Inc., said a major reason for the two-phase build-out is that many of DISH's spectrum licenses are subject to various build-out requirements from the Federal Communications Commission. For example, the 700 MHz E Block licenses DISH purchased in 2008 and the AWS-4 licenses acquired in 2012 require the satellite company to build out a network that covers at least 70% of the population in each license area by March 2020.

Kagan analyst Sharon Armbrust agreed, saying in an interview, "I don't see that DISH has any choice but to build the [internet of things] network … given that the company has a hard stop deadline of March 2020 to get a network in place, and more deadlines behind that." Kagan is a media research group within S&P Global Market Intelligence.

Farrar said it remains unclear whether DISH's narrowband internet-of-things Phase 1 network build will satisfy the FCC.

"We're talking about a build-out costing $200 million, not a multibillion-dollar network that would truly compete with the existing wireless players," Farrar said, adding, that one possibility could be that the FCC would deem the Phase 1 build-out "good enough" if DISH shows it is making "substantial progress" on the more extensive Phase 2 network.

"So that all puts pressure on how are they going to do this Phase 2 build-out," Farrar said, noting substantial questions remain about whether DISH will seek out a partner or sell some of the spectrum.

Armbrust noted she believes Ergen "is always focused on finding a partner, regardless of titles."