Did Charlie Ergen Make A Bad Wireless Bet?

In comments to adoring satellite dealers in May 2012 in Orlando during his company’s annual trade show, Dish Network Chairman Charles W. Ergen outlined his vision for what type of service his company planned to offer using the wireless spectrum it has been buying.

Dish Network, he said, had to offer six types of service in order to compete with larger companies and join, in his words, the “big leagues” of service providers. They were mobile video, data and phone services (like the four major cellular services sell today); home data and phone services via wireless spectrum (instead of landlines); and Dish Network’s DBS service.

Ergen boasted that by the time his company staged its next trade show for satellite dealers a year later, he hoped to show the retailers a “Dish phone” — an obvious nod to Apple’s flagship phone.

It is now almost five years later, and Dish Network is selling exactly one of those services to consumers — the same one it was selling all those years ago: the Dish Network DBS service. By most accounts, and even Ergen’s comments, that service may be on the road to oblivion.

Dish Network is certainly managing it that way, trying to squeeze every penny of profit from the DBS business, while largely abandoning the satellite dealers who helped it succeed in the first place, and what is left of a struggling satellite TV industry.

The company’s release of its fourth quarter and full-year results on Feb. 22, though impressive from a profit standpoint, did nothing to allay the concerns of most satellite dealers or many other industry hands.

Including the investment Dish Network made in the AWS-3 auction, the company has now spent $15 billion acquiring  wireless spectrum and does not yet have a single customer using that bandwidth.

The consumer media has made a parlor game out of speculating what Ergen might do with that  spectrum, and what transactions Dish Network will be involved in to actually launch some sort of wireless business. But could it be that Ergen, perhaps for the first time in his company’s history, has backed himself into a corner with few options?

In terms of a deal with another wireless company, it would appear to be the case. AT&T, of course, is out. Ergen and the Japanese executive who controls Sprint cannot stand each other. And T-Mobile’s John Legere can barely hide his disdain for Ergen.

In January, Legere predicted Dish Network “will die this year.” Some two years ago, Ergen and Legere held talks about a deal. One of the key points was which one of them would run a combined entity since neither, to be polite, are exactly hurting in the self-esteem department.

Legere came to believe Ergen would allow him to run most of the operation. The T-Mobile camp even had a story planted in The Wall Street Journal, certainly not a tough thing to accomplish, saying the two had agreed on the power-sharing structure.

Only, as anyone who had known Ergen for more than 30 seconds understands, he would never allow anyone else that much control over Dish Network. How Legere did not is puzzling at best. Regardless, Legere walked away feeling bamboozled, and his nasty shots at Ergen and Dish Network ever since obviously reflect that.

That, presumably, would leave Verizon.

But Verizon has repeatedly said it has no interest in buying Dish Network and its spectrum. Maybe it is time to believe that. Ergen’s remarks on a recent call with analysts would also seem to signal that.

Needless to say, Ergen has complete and unilateral control of Dish Network (and Echostar) and can change courses anytime he likes without opposition. Vladimir Putin has less control over Russia than Ergen has over his companies.

But consider some of the things said on his fourth-quarter earnings call. In what many will see as a acknowledgment Dish Network will not be part of a major transaction, Ergen said his company is “not going to drive” the discussions many believe will take place once the FCC’s ban that bars companies involved in the current spectrum auction from talking to each other is lifted in a few weeks.

But at several points he said his company looks at its spectrum and expertise “as the ability to connect to microprocessors and machines and things.” Dish Network, Ergen implied, was now concentrating its efforts on a business to address the “Internet  of things” market which some believe will mean the connection  of many different appliances, devices, and other technology

based products rather than providing wireless services for consumers.

So say a company like Samsung — which Dish Network has started repairing washing machines for — wants to have a dedicated network to connect its appliances. Perhaps to get a heads up before they explode or catch fire. That company could contract with Dish Network for a turnkey, managed network which does not involve the major wireless carriers.

Same thing could be said for hospitals, gas stations, and who knows what. Could be a very profitable business for Dish Network in the  long run. But not a very interesting or glamorous one, and clearly not the kind of wireless business Ergen envisioned for his company.

But it would keep from Ergen from having to sell the company’s spectrum in a fire sale, allow him to keep running his companies and, maybe most importantly, allow him to save face.

That would be paramount to Ergen, who turned 64 on March 1. Ergen is a master of convincing people his current business plan was the one he had in mind all along.

On the earnings call, for example, he said that type of wireless enterprise would give Dish Network the chance to make “a difference in peoples’ lives.” Because that is what all billionaires care about most of all.

As has been noted in this space many times, it is never wise to count Charles Ergen down and out. But there is one inescapable reality Ergen cannot dispute: His company entered the washing machine repair business before the wireless business.

And by any measure, that is not what he was thinking about that day in Orlando.

Bob Scherman is the editor and publisher of Satellite Business News, an independent trade publication. Scherman has covered the satellite TV, cable, and related businesses for almost 35 years. Comments on this column can be sent to [email protected].