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Dish Chairman Accuses AT&T of Using HBO as an ‘Economic Weapon’

Dish Network chairman Charlie Ergen blasted AT&T for demanding unreasonable terms from the pay-TV distributor for HBO, saying the telco is insisting Dish pay for a minimum number of subscribers to the premium cabler whether or not that number of Dish customers actually take HBO.

On Oct. 31, HBO and Cinemax channels were removed from Dish and Sling TV lineups, the first time the premium cabler has ever gone dark in its 46-year history.

Ergen said AT&T is using HBO as an “economic weapon” to try to extract more money from Dish.

“This is purely an anti-competitive play that we tried to warn about” during the Justice Department’s antitrust case seeking to block the AT&T-Time Warner merger, said Ergen, speaking on Dish’s third-quarter 2018 earnings call Wednesday. “We can’t sign a deal [under which] we would actually pay for [AT&T’s] customers — and that’s what it would be.”

According to Ergen, Dish would be effectively subsidizing AT&T wireless subscribers who are offered HBO free for life. HBO also sells its service direct to consumers through HBO Now. He also claimed that HBO knows it has Dish over a barrel, because for many of its satellite TV customers the only other option is DirecTV.

AT&T didn’t consent to arbitration for disputes over HBO carriage in its concessions on the Time Warner deal (as it did with respect to Turner’s networks). “Obviously you can see why, because they can use [HBO] as a weapon against Dish,” Ergen said.

In response, HBO issued a statement from CEO Richard Plepler, who called the comments by Ergen “a silly but transparent attempt on Dish’s behalf to muddy the waters for reasons only they can explain.” According to Plepler, it was Dish that pulled the HBO and Cinemax signals on Oct. 31, after HBO offered to extend their existing contract while negotiations continued.

“The terms of our proposal were advantageous to Dish compared to their current deal,” Plepler said in the statement, without addressing the claim that HBO is insisting on a minimum subscriber guarantee from Dish. “We’re actually perplexed by their unwillingness to take this proposal as an opportunity rather than perpetuating a conflict which only hurts consumers. The notion that AT&T had anything to do with our inability to reach a reasonable deal with Dish is simply not true.”

For the third quarter of 2018, Dish posted its biggest quarterly net subscriber loss to date. It shed 367,000 satellite TV customers while gaining only 26,000 Sling TV internet-streaming subs. Dish president and CEO Erik Carlson, on the call with analysts, said roughly half the Dish TV subscriber losses in Q3 were related to the dropping of Univision programming, which was pulled from the lineup on June 30.

Ergen acknowledged that the loss of HBO will cause Dish and Sling TV to lose customers in Q4. With Univision, Dish is looking at doubling down on distributing free antennas and otherwise enabling customer access to Univision content through other means.

“We need to fight for our customers. Our customers are saying they don’t see the value in linear television,” Ergen said in reference to the stalled talks with Univision. With many Dish customers having access now to Univision through over-the-air antennas or through Dish competitors, “we would actually face backlash if we put Univision back up again,” according to Ergen.

“We believe we can actually increase our market share in Latino next year” with “an off-air antenna to give them Univision product without [customers] having to pay for it,” Ergen said. “We prefer that our customers pay for Univision but to the extent [Univision doesn’t] want to have a contract with us… we know that in the urban markets where most of our Latino customers are, that is a very attractive alternative.”

Dish’s Sling TV net addition of 26,000 subs in Q3 was very light, compared with its gain of 239,000 internet-TV users in the year-earlier period. Ergen said the lower net adds were because there’s more competition in the over-the-top space, citing DirecTV Now, YouTube TV, and Hulu With Live TV. “It’s probably more that the category is growing and the competition is tougher,” he said.

Most virtual pay-TV providers “probably aren’t making money,” Ergen said, adding, “We think we can be a long-term player there.” Asked if Sling TV is profitable today, Ergen responded that it “depends on how you look at it. Under Charlie Ergen’s definition, I’d like to be making a little bit more money than we are today.”

Sling TV will add Discovery’s linear networks to the bundle later in the fourth quarter, while maintaining the same price point for the OTT bundles, according to Carlson.

Overall for Q3, Dish revenue fell 5%, to $3.40 billion, while it boosted net income by 44% to $430.5 million (or 82 cents per share) — beating Wall Street expectations on both fronts. Contributing to Dish’s higher operating profit for Q3 was a change in revenue recognition for subscriber acquisition costs; Dish now capitalizes payments made under certain sales incentive programs that were previously expensed as “subscriber acquisition costs,” which resulted in a $41 million positive impact on operating costs.

Dish execs also discussed the company’s plans to deploy a 5G-capable network in its licensed spectrum, geared around narrowband internet-of-things applications. The first phase is scheduled to be completed by March 2020. Dish has picked Ericsson as its first tech vendor for the buildout.

The wireless IoT network will appeal to companies in a variety of industries, Ergen maintained, including health care and car companies like Uber. “If you want to do virtual reality, and you want a headset that’s wireless, you’re going to like what we’re going to do,” Ergen said.

Carlson, in his introductory remarks on the call, paid tribute to former Dish CEO Joe Clayton, who died on Nov. 3. “He was a giant in the industry, and left an indelible mark on our company,” Carlson said.

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