Dish Pushes for Denial of Charter/TWC/BHN, Talks Down Incentive Auction

Pointing to possible harm to the over-the-top (OTT) market, Dish Network officials want the FCC to deny approval of Charter Communications buying Bright House Networks and Time Warner Cable. Dish was a major opponent of Comcast's now-dead attempt at buying TWC, citing potential harm to OTT competition. "The only difference [this time] is Charter doesn't own NBC," Dish CEO Charlie Ergen said Monday in a conference call on Q3 financial results. Some thought his comments on the incentive auction, meanwhile, signaled Dish may not go big on the auction.

Charter/TWC/BHN "would empower the combined company to hurt or destroy online video rivals, including the Sling TV over-the-top video service, through its control over the broadband pipe," Dish said in an ex parte filing posted Friday in docket 15-149. Dish owns Sling. The $89.1 billion deals "will create a suffocating duopoly" with two broadband providers having roughly 90 percent of the nation's high-speed broadband homes, Dish said in the ex parte on meetings between Dish representatives including Jeffrey Blum, deputy general counsel; and Alison Minea, senior counsel-regulatory affairs; with FCC representatives including Media Bureau Chief Bill Lake, Office of General Counsel Senior Counsel Jim Bird, and frontline staff of Chairman Tom Wheeler.

"They will not need to collude in order to bring their collective weight to bear" on an online video distributor, Dish said, saying "parallel foreclosures, with one of the two following the other, would be enough for an OVD to be shut off from most of the high-speed homes in the country." New Charter would also mean "a significant proportion" of its high-speed broadband subscribers would lack any competitive choice in providers, because close to two thirds of households in its footprint wouldn't have an alternative provider, Dish said. Charter and TWC's systems abut each other much more than Comcast's and TWC's did, meaning "greater loss of potential competition as well as 'benchmarking' opportunities, compared to the failed Comcast/TWC transaction," it said. Charter has argued it has no incentive to hurt competing OVDs since it's more interested in its broadband business than linear cable service (see 1511030024), but "the same claims were debunked in the Comcast proceeding for one simple reason: it is extremely difficult to leave a high-speed broadband ISP and few customers ever do," Dish said.

One attorney familiar with the transaction said Dish's case is based more on speculation of harm than the actual harm parties like Netflix actually saw in Comcast/TWC through interconnection fees. That Dish hasn't leveled the same degree of opposition it did in the Comcast proceeding, such as hiring its own economist in that case, indicates Dish is actually angling for conditions, said the lawyer.

While Dish customer losses accelerated -- the number of pay-TV subscribers dropped 23,000 in the most-recent quarter vs. a loss of 12,000 a year earlier, Dish said in a news release -- much of the focus of Monday's call was its OTT business. With the declining pay-TV base industrywide, programmers are taking a closer look at options like Sling TV, Ergen said. At the same time, he said, Sling isn't a substitute for such options as linear TV, cable or DBS, as its reliability still lags, he said: "We've closed the gap on that, but there's still a gap. Streaming live television is a lot more difficult than VOD." Sling's user interface also needs improvement as the number of channels has grown, said Ergen. He also is chairman of EchoStar, which Friday reported Q3 results and said it helped Dish start Sling nationally (see 1511080002).

During the quarter, Dish revenue totaled $3.73 billion, up $50 million from the same quarter in 2014. It finished the quarter with 13.91 million pay-TV subscribers, compared with 14.04 million at the end of Q3 2014. Broadband subscribers were 608,000 for the quarter, compared with 553,000 a year earlier.

When asked about Dish's possible participation in the incentive auction, Ergen said the company hasn't decided whether to participate because it hasn't figured out spectrum impairment issues and how that effects the usefulness of the spectrum up for auction. The company also is still figuring out its longer-term spectrum strategy, including whether Dish partners with another company in using the spectrum or sells or leases it, he said.

Ergen "really ... talk[ed] down the incentive auction," pointing out interference issues and auction complexities, indicating if he doesn't take part Dish would be able to pursue any number of strategic options without having to work around the quiet period deadline beginning Jan. 28 and "that he may think the 600 MHz being auctioned off is of less value than his AWS3 and AWS4," Wells Fargo analyst Marci Ryvicker wrote investors Monday. Dish is unlikely to take part in the 600 MHz auction, "which would seem to eliminate communications issues with potential parties to lease Dish spectrum," wrote Pivotal Research Group Senior Analyst Jeffrey Wlodarczak. "An outright sale of the spectrum continues to be a long shot as it is simply too big of a bite for existing wireless players."