Monday, August 13, 2018

Can Charlie Ergen Do it Again?

John Chambers, former Cisco CEO, is known for his belief that the technology business is about making transitions.

There are likely many observers who believe Dish Network cannot make another transition in its business model, as Comcast, Verizon and AT&T have done in the past. People sometimes forget (or never knew) that Charlie Ergen, Dish Chairman and also chairman of Echostar, has made at least a couple of business model transitions.

He started out in business selling personal earth stations, back before there was a direct broadcast by satellite business. That business of retailing television receive only dishes existed at a time when satellite TV programmers did not encrypt their signals, allowing any owner of a TVRO earth station to watch the feeds at no incremental cost.

That was declared lawful by the Federal Communications Commission in late 1979, allowing consumers willing to put up a 20-foot reflector to watch HBO, and eventually many other satellite-delivered channels, for free.

But programmers started encrypting their signals, killing the TVRO business. So in 1990 Ergen purchased satellite orbital slots, founding EchoStar in 1993, to support a new DBS service known as Dish Network,  that arose to supply satellite TV on a paid basis to subscribers, largely in rural areas.

In the intervening years Dish Network acquired Blockbuster, the chain of video retail outlets, and then continued to acquire other satellite assets, making bids for Hulu and Sprint as well as Clearwire. Those the Hulu, Sprint and Clearwire efforts did not result in a transaction, you can see the development of thinking about business model.

Separately, EchoStar moved into decoder manufacturing and also bought Hughes Network Systems, the supplier of satellite enterprise network services,  and consumer internet access.

Most recently, Dish has amassed, by acquisition and spectrum auctions, 5G spectrum assets that now represent the future of the company.

The point is that Ergen has made at least one major successful business model transition (TVRO to DBS), with a key diversification into satellite enterprise services and consumer internet access by satellite through EchoStar.

Ergen also has attempted to become a key player in streaming (Sling TV) and mobile services.

So it arguably is clear that Ergen has seen the need for a further business model transition out of DBS and into something else for quite a while. Some would say the 95 MHz of 5G spectrum now represents nearly the entire value of Dish Network, as the DBS business continues to shrink.

Many have believed that Ergen ultimately would simply sell the spectrum, rather than try and pull off yet another major business model transition. But at least some now believe Dish has no choice but to go ahead and build a narrowband internet of things network as the foundation for its next transition.

The reason is simply that no acquirer would be likely to get transaction approval before the deadline for building an operating network using much of the spectrum purchased at auction. That has to be done by 2020 or Dish (or any other owner) loses the AWS spectrum assets.

That buildout includes a stipulation that the network be active and reach about 70 percent of U.S. population in 2020.

So it now appears Dish will have to do so, spending perhaps $1 billion to create the narrowband IoT network as a first step. The actual revenue model has not yet been talked about (Dish could operate as a wholesaler to others who want to create a national NB-IoT network, or could sell at retail to enterprise customers.

Some likely continue to think Ergen will not be successful making that sort of business transition from video entertainment provider to mobile service provider. But skeptics believed cable TV operators would not be good at programming, or that AT&T would not be all that successful as a video retailer, or that AT&T cannot be competent as a programmer.

To be sure, some still might question some parts of those theses. But video suppliers have become competent providers of communication services, while telcos now are successful video subscription suppliers, and there is no reason to doubt, in principle, that a big video subscription services supplier cannot become a competent programmer.

Ergen has made big business model transitions in the past, and he might well do so again.

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