EchoStar CORP Q3 FY2024 Earnings Call

Thank you. Welcome to EchoStar's third quarter 2024 earnings call. We will begin with opening remarks from Hamid Akhavan, President and CEO; followed by Paul Orban, EVP and Principal Financial Officer; Gary Schanman, EVP and Group President of Video Services; John Swieringa, President of Technology and COO; and Jeff Boggs, SVP of Finance for Hughes, who is joining us as Paul Gaske is currently traveling for enterprise business meetings. We request that any participant producing a report not identify other participants or their firms in such reports. We also do not allow audio recording, which we ask that you respect. All statements we make during this call, other than statements of historical fact, constitute forward-looking statements made pursuant to the safe harbor provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that could cause our actual results to be materially different from historical results and from any future results expressed or implied by the forward-looking statements. For a list of those factors and risks, please refer to our quarterly report on Form 10-Q for the quarter ended September 30, 2024 filed and accepted today, November 12, and our subsequent filings made with the SEC. We understand the SEC has some technical difficulties today disseminating all public company filings. So we posted the third quarter 10-Q directly to our Investor Relations website a few hours ago. Our 10-Q is now available on EDGAR as well. All cautionary statements we make during this call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our reports and should not place any undue reliance on statements. We assume no responsibility for updating any forward-looking statements. We refer to OIBDA and free cash flow during this call. The comparable GAAP measure and a reconciliation for OIBDA is presented in our earnings release and in the case of free cash flow, in our 10-Q. With that, I'll turn it over to Hamid.

Thank you, Dean. Welcome, everyone. Thank you for joining us today. For the past few earnings calls, we have postponed discussing certain aspects of our financing as transactions were under negotiation. However, I'm pleased to address these with you today. At the end of September, we announced a series of transactions which represent one of the largest and most comprehensive simultaneous M&A and balance sheet restructurings to date. Of the transactions which have already been completed, first, TPG Angelo Gordon and a number of co-investors, as well as DIRECTV, provided $2.5 billion in financing to pay DISH DBS November debt maturity, interest, and other operating needs. Second, we launched and successfully executed an exchange offer for the convertible notes, of which we received tenders from 92.9% of the 2025s and 98.5% of the 2026s. Today, note holders who opted into the exchange will receive a combination of new secured straight and convertible notes with a lower total principal amount due and maturities extended to 2030. Furthermore, certain convertible note holders will provide approximately $5.2 billion in additional financing via secured notes, which are due in 2029. Third, we issued $400 million in equity via a PIPE facility subscribed by institutional investors. We expect both the secured notes and the PIPE to be funded today. As a result of these transactions, the going concern disclosure we had in the first half of 2024 has been removed. Finally, we agreed to sell our Video Services business, namely DISH and SLING, to DIRECTV, subject to successful closing of a DBS exchange offer and satisfying other customary closing conditions. The transaction would reduce EchoStar's consolidated debt by approximately $11.7 billion. The resulting combined Pay-TV company would benefit US Pay-TV consumers by providing more choices and better value in this highly competitive market. The sale of our Video Services business to DIRECTV will take time; assuming successful completion of the related exchange offer, we expect to close in late 2025. While we are hopeful the DBS exchange will be successful, we now have a more robust foundation to operate and grow EchoStar's business independent of the exchange outcome. Looking at the bigger picture of our business, the recent transactions highlight the valuation of our spectrum assets. As we look to the future of connectivity in an AI-powered world, wireless connectivity will be a primary enabler, and wireless spectrum will be the most scarce resource, giving further rise to its valuation. We believe there are upwards of tens of billions of dollars in asset value that is not accounted for in our current market cap. Closing this gap could have a tremendous positive impact on our share price. We are focused on realizing this value for our shareholders through a robust development and the scaling of our mobile business. As for EchoStar's third quarter operating results, I am once again pleased with our team's execution. We continue to manage costs throughout the business and focus on profitable growth at scale. The Pay-TV segment continued to create significant cash flow for the business during the quarter. We grew the SLING TV customer base and improved operational efficiencies on the DISH TV side and implemented cost-effective initiatives. On the Hughes front, we continue our march toward expansion of our enterprise business, such as our in-flight aviation products and services. In parallel, we focus on acquiring and retaining high-value consumer subscribers at HughesNet. For our Boost Mobile brand, we continue to make improvements and saw additional subscriber growth in the third quarter, excluding the impact of the terminated ACP program. We'll talk more about the strategy and performance of Boost Mobile in a few minutes, but we have improved the digital experience through a unified brand identity and offerings and added important new distribution channels through Apple retail. We continue to enhance and densify our Open RAN 5G wireless network. The FCC took a significant step in promoting competition in the wireless market by approving our updated build-out framework for our 5G network. This new framework will enable us to focus on driving competition faster in key markets, deliver lower-cost offerings to consumers, and accelerate and expand our final build-out milestones for certain spectrum licenses. Overall, we made tremendous progress in realigning our business, addressing financial concerns, and setting up EchoStar for growth over the coming years. Before I turn the call over to Paul Orban for commentary on the financials and in light of the recent election, we look forward to working with the new administration on advancing U.S. leadership in 5G, promoting competition both domestically and internationally, and driving innovation and growth with Open RAN, cloud-native, and non-terrestrial network or NTN satellite solutions. Now, over to Paul Orban.

Thank you, Hamid. As Hamid mentioned, in late September, we announced a series of transactions that substantially restructured our balance sheet. These actions highlight our commitment to strengthen our financial position and strategically refocus on the future, resulting in the removal of our going concern disclosure. We ended the third quarter with over $2.7 billion in cash and marketable securities, including our restricted cash. We will fund the $2 billion of debt return this week from this restricted cash. We continue to manage all of our brands with a focus on financial discipline and a goal to onboard the highest quality subscribers. As a result, these efforts are evident in our DISH and Boost Mobile churn rates this quarter. Now, let's review our financial performance for the third quarter. Revenue was $3.9 billion in the third quarter, that’s down 5% year-over-year, primarily due to fewer subscribers. OIBDA was $317 million, down $49 million year-over-year, driven by higher network operating costs for more sites on air and lower gross margin related to fewer subscribers. As stated on previous calls, our teams are focused on maintaining positive operating free cash flow. We are on track to meet this goal in 2024, in part due to our financial discipline and by continuing to execute on our operational plan. Free cash flow for Q3, which includes our debt service, was negative $219 million, largely driven by cash interest. Year-over-year, free cash flow improved by $295 million, primarily driven by a $451 million decrease in capital spend for the network, which is in line with our prior guidance. This decrease in capital spend was slightly offset by the $49 million decrease in OIBDA. We continue to expect CapEx for the year to be roughly half of what it was in 2023. With that, I'd like to turn it over to Gary to discuss Video Services.

Thank you, Paul. As Hamid mentioned, we made significant progress across the Pay-TV business in Q3 against priority initiatives supporting ARPU growth, customer engagement, and cost optimization. Despite a continuously challenging market landscape, we continue to operate favorably across key metrics of churn, net adds, and per subscriber profitability. In Q3, we achieved a year-over-year ARPU increase of 3.4% across the business and our cost optimization initiatives continue to yield significant year-over-year SG&A and variable cost savings. These efforts drove substantial increases in OIBDA for subscriber growth versus Q3 2023. Throughout our business, we drove solid results by focusing on product innovation, customer experience improvements, AI/ML and data-driven marketing efforts, AI-enabled advertising creative development, and focused investment. On the DISH TV side, specifically, we finished the quarter with approximately 5.9 million subscribers, with Q3 churn 11 basis points lower than Q3 2023. SAC for activation also substantially improved year-over-year, driven by increased marketing efficiency. As mentioned last quarter, we launched our Netflix retention bundle and are very pleased with how it’s performing and plan to pilot a Netflix acquisition bundle offer in the fourth quarter. On the Sling TV side, we grew in Q3 and now have over 2.1 million subscribers, 145,000 more than last quarter and our highest mark since 2022. We have driven a reduction in year-over-year SAC and an increase in return on marketing investment due to deploying proprietary AI models that effectively target, optimize offers and retain high-quality subscribers. We're very proud to have been recently named best live TV streaming service from multiple publications. This is due in part to our continual focus on quality, as well as the rollout of additional differentiated product features, which resulted in 18 straight months of viewership growth and extending our lead in live TV streaming quality, according to Comviva. Our focus in Q4 will be to continue this positive momentum in our key operational metrics for a strong finish to the year. I'd like to turn it over to Jeff Boggs, who will cover broadband and satellite Services now.

Thank you, Gary. Our Broadband and Satellite Services segment operates in the consumer, enterprise, and government markets. Our HughesNet consumer brand business continues to add subscribers on our JUPITER 3 satellite. We focus on offering affordable, high-speed, unlimited data service plans to new customers, while simultaneously providing high-value upgrade plans to our existing customers. We closed the quarter with approximately 912,000 subscribers. With the end of the ACP, we saw additional customer disconnects during the third quarter, which impacted our churn performance for the quarter. Despite these headwinds, our focus remains, as in previous quarters, on acquiring and retaining high-value customers for HughesNet. In the enterprise market, our Hughes Managed LEO business has now shipped over 10,000 Hughes manufactured user terminals based on our unique flat panel, electronically steerable antenna technology. Feedback from our customers continues to be very positive, and demand is increasing as we grow the business. For the second year in a row, Hughes was recognized as the leader in the Gartner Magic Quadrant for managed network services, which is a testament to our ability to deliver cutting-edge secure network services. Additionally, Hughes was named the 2024 Managed Security Service Provider of the Year by the Cybersecurity Breakthrough. The award recognized Hughes as a leader in providing managed network and security solutions. Our in-flight entertainment and connectivity business continues to grow. We've also begun working with Gogo Business Aviation for use in their Galileo service, where our HDX ESA antenna successfully completed test flights and passed the FAA qualifications. We continue to grow our presence in the DoD 5G networking market with a recent award from the US Army for their 5G Open RAN initiative at Fort Bliss, Texas, which is aimed at exploring the advantages of near real-time control of the radio access network. This award comes on top of the previously announced successes with the US Navy at Whidbey Island Naval Air Station and a naval base in Hawaii. These awards put us in a good position to participate in the government's Spiral4 program, a 10-year $2.7 billion opportunity. EchoStar is uniquely positioned as both a satellite and mobile service provider to develop solutions with a global impact. The portfolio of products offered and our global S-band assets puts us in a unique position to provide such solutions as direct-to-device. We are already hard at work on this technology and have successfully tested it with our satellites over North America and Europe. We look forward to keeping you updated on progress in this space. With that, I will turn it back to Hamid for an update on our retail wireless business.

Thank you, Jeff. Regarding retail wireless, we continue to progress in our operational enhancements in Q3. We are in a better spot. We are funded, have additional runway to support our obligations to the FCC, and can now anchor our efforts to capital allocation and on how to drive growth in the retail business. We are adjusting our plan due to the recent positive financial and regulatory developments. As I mentioned on our last earnings call, we made a few significant changes to the business in July. With our refreshed brand and unified prepaid and postpaid experience across the Boost Mobile website and app, we provide consumers simple and flexible offerings. During the third quarter, we expanded our portfolio. As an example, we introduced a unique offer of providing consumers one year of free service when they purchase select Boost Mobile network-compatible 5G phones. We are now in a position where we are activating more than 50% of our all-new device sales on our own network. We also expanded our relationship with Apple during the quarter. Customers can now purchase and activate Boost Mobile service through Apple retail stores, apple.com, and the Apple Store app. These efforts have helped contribute to our first two consecutive quarters of net positive subs, excluding the impact of ACP subscribers since acquiring the business. We finished the quarter with 6.98 million wireless subscribers. As mentioned, excluding the loss of net ACP subscribers, we added approximately 62,000 subscribers in the third quarter. In addition to improvements in brand messaging, simplified plans, and valuable partnerships, we furthered operational improvements to drive efficiencies across Boost Mobile, growing the number of accounts participating in AutoPay, streamlining our loyalty upgrade processes, increasing enrollment in add-on services like Boost Protect, and migrating even more customers onto the Boost Mobile network. We have seen a 29% improvement in churn in the third quarter on a year-over-year basis. ARPU improved year-over-year as well as from Q2 as we continue to focus on higher-quality customers, improved customer experience, and network optimization. We are encouraged by the current state of the business and are adjusting our plans to profitably increase our market share in 2025 as we benefit from economies with our network. While there's plenty of work to do, we are pointed in the right direction and expect to continue to deliver improved results through the end of the year. Let me now hand the call to John to cover our network deployment progress.

Thanks, Hamid. As Hamid mentioned at the start of the call, in September, the FCC took a significant step to promote competition in the wireless market by approving an updated framework for our 5G network build-out commitments. The new framework provides a three-year extension for certain spectrum licenses, enabling us to focus resources on making our Boost Mobile business more competitive in markets where the Boost Mobile network is live and we have a retail presence. Americans will benefit from the updated framework, as it paves the way for us to provide 5G broadband access to more than 80% of the US population by the end of this year. That's an additional 30 million Americans covered by the Boost Mobile network since we achieved our last FCC commitments. We're committed to offering low-cost wireless plans and 5G devices to consumers nationwide, empowering American consumers with greater choice and flexibility when it comes to choosing a wireless provider, plus the updated framework enables us to build our network more efficiently and increase competition in highly populated areas. Today, the Boost Mobile network covers over 250 million Americans with 5G broadband and more than 208 million Americans with 5G voice, and we continue to expand and optimize the network. In fact, we will expand our Bonner footprint to three additional markets in the coming weeks, as Boston, Pittsburgh, and Seattle are set to go live with 5G voice, increasing our 5G voice coverage to over 216 million Americans by the end of the year. In Q3, we invested $235 million in our network deployment compared to $686 million in Q3 of 2023. We continue to be disciplined with our approach as we transition from building and deploying to running and optimizing our network. In regard to on-net customers, they receive pure 5G on the Boost Mobile network and extended coverage through our network partnerships, offering wireless customers coverage totaling 99% of the US. We continue to onboard additional customers on our network, and with traffic increasing, we are observing competitive network performance metrics. In many markets, the Boost Mobile network is already outperforming our competitors. Now I'll turn it back to Hamid.

Thank you, John. With our November debt payment now secured and additional financing, EchoStar is well-positioned to finish the year according to plan. In addressing our capital structure needs, we can now realize the true potential value of the business. The operational discipline we have exhibited all year will continue to serve us well into 2025. We have made significant progress on our various lines of business and will continue to build upon the positive momentum in the coming year. With that, we'll open it for Q&A from the analyst community. Operator, please give the instructions today.

Thank you. Our first question today is from Ric Prentiss with Raymond James. Please go ahead with your question.

Thanks. Good morning, everybody. A couple of questions. First, obviously, ACP, it looks like it's over, but can you help us understand, is there any more ACP to come in 4Q or beyond? And how much was the ACP impact in Hughes?

Good morning, Ric. Thanks for the question. Paul, if you...

Yes, the vast majority of the churn related to ACP hit in Q3. There's very little of those subscribers left in our subscriber base as of 9/30. And as it relates to the impact on Hughes, Jeff, do you want to take that?

Sure. I mean, most of our ACP-related churn happened in Q3. So that additional churn did impact our churn and our net subscribers in Q3. We think we’re through most of that. So we should see a better path forward.

Okay. And obviously, with the PIPE done and the spectrum securitization done, money in the bank, start doing some profitable growth of subs. Help us understand what kind of targets you've got or what kind of go-to-market strategy you're going to try to grow the scale of wireless, the retail wireless business?

So Ric, that's obviously not something that we can get into specifics here for a variety of reasons, including competitive dynamics. But you can imagine that having a very efficient, modern network today gives us the agility that we think other carriers using legacy infrastructure and offerings and systems cannot match. We are optimized for AI. We run on the cloud, we are software-based, and we have the greatest security based on standards which the United States is pushing across the world and frees us from using other suppliers, Chinese suppliers, or other suppliers that cannot provide the same level of security. So we think we have a lot of advantages here to push our agenda forward. Until now, we haven't been able to push as much, but of course, now it’s better. Having said all of that, we're going to focus on profitability and discipline, clearly accelerating the business, but never losing sight that value creation also has a sight on ultimate profitability and sustainable value. So more to come on this one. It's early days for us after having gotten all this good news recently, but we do have a significant amount of technological and other advantages that we have not yet demonstrated in the marketplace.

I assume the profitability is pretty focused on trying to get people on-net, both on the device side but also just trying to keep them on-net to improve the profitability. Is that one of the focal points on growing subs?

That would be the biggest opportunity. As I mentioned earlier, over 50% of devices being activated are now on-net. At the beginning of the year, we had very few devices that were compatible with our network, as our portfolio was quite limited. Today, we offer a wide range of devices, including the iPhone 15 and 16, and nearly all current Android devices are compatible with our network. The supply base has expanded, making it much more feasible for us to leverage that owner economics.

Okay. Thanks. Good to have the DISH network and the EchoStar side of those transactions done. Thanks, guys.

Thank you.

Our next question is from the line of Walter Piecyk with LightShed. Please proceed with your questions.

Thank you. My first question is about the debt exchange. Assuming these individuals are going to remain firm, let's consider for argument's sake that the deal hasn't occurred. I understand you have the $5 billion and the equity portion available, but is it reasonable to think that you can keep using the free cash flow from DBS to support the buildout and marketing of the wireless business?

First of all, I want to say that if the exchange does not close successfully, we'll continue to operate our business. Our DISH business has been the primary business of this institution, and we continue to operate it as we always have. And I won't get into the specifics of cash flows related to that business. That's not something I am prepared to speak to, but I just want to say that we do have a path forward. Now will be the cash available to us from other sources that we have put on the balance sheet. We certainly can develop the business regardless of the developments that happen at DBS. Now the nuances of the cash between that entity and parent are something that is not going to change the course of our business in terms of value creation. I won't comment on various specifics of it today.

Understood. Regarding the Wireless business, there's been a change in management. I heard Malone mention that he believes Comcast and Charter could potentially merge, which would create a larger presence for fixed assets. When considering the capacity your network offers to a cable operator that lacks this infrastructure, how do you view your role as a strategic asset in the future? I suspect Comcast has a significant interest in leveraging your network as an alternative source to Verizon, which could broaden their capabilities beyond what they're currently offering, especially if they acquire Charter. I'm interested in your perspective on whether you're open to bringing on a major wholesale customer or if you'd prefer to hold onto that strategic value for future opportunities.

Great set of questions. I'll start the answer and then pass it over to John for additional insights. We are in the largest economy and the biggest IT spending country, which certainly justifies our presence in the network space. We are in a fortunate position with significant technological advantages and a strong spectrum position, allowing us to capture a large market share. We have only begun to tap into our potential. We are ready to seize any opportunities that may come our way, both on the retail and wholesale sides. We look forward to exploring all possibilities with our underutilized network and superior technology. John, feel free to share any specific thoughts from your perspective.

Thank you, Hamid, for your question. Reflecting on our past discussions about the network's potential, we've essentially established a wholesale network. Our Boost Mobile business utilizes our 5G network as a wholesale service as well. We recognized the significant opportunity to develop a wholesale market. We've conducted several successful 5G standalone roaming trials to prepare for onboarding additional major customers onto the network. We have been focused on ensuring that we have sufficient 5G voice capacity in key markets to support these efforts. There are assets out there that complement ours well. When considering our macro coverage alongside indoor and Wi-Fi coverage, we believe we have compelling product capabilities. As the market evolves, we will continue discussions to ensure we can fully engage. We believe our network is poised for substantial traffic growth, which is a favorable position. We will monitor how the market discussions progress.

That sounds to me like you're more interested in extracting strategic value through partnership as opposed to just basically making them buy the cow, so to speak?

Look, we have not chartered a definitive course, exactly how we are going forward. But all those options or any options on the table would be evaluated. We certainly know that we are vastly undervalued from the perspective of how many assets we have. If you just take a look at tens of billions of dollars in inspection value that is not yet reflected in our share price, I think we can develop it through a number of avenues. Clearly, a retail angle for us is paramount. We continue to operate the business. Customers are delighted with the quality they experience today. Our churn indicates that our increase in ARPU indicates that without even us having pushed it. Our retail business will continue to grow, and it's going to be a good competitor in this market. But as John mentioned, having so much excess capacity and IT systems that are modernized and ready for AI, ready for agility, you can imagine that a number of partnership opportunities become real. Now how these opportunities are structured is something that time will tell and how we manage to make them happen. But we are certainly aware of what it would take for us to maximize the value in our equity share price.

Thank you. Thank you very much.

Our next questions are from the line of Jonathan Chaplin with New Street Research. Please proceed with your question.

Thank you for addressing my question. I have two related inquiries. First, could you provide an update on the progress regarding contract wins for the private network and the pricing aspect of the business? Additionally, at the start of the call, you noted the substantial unrealized value of your spectrum portfolio, which we estimate to be worth $65 billion. Can you share your thoughts on your goal of establishing a business that realizes this value? Specifically, how long will you pursue this objective before considering a change in direction? Is it a matter of two or three years to assess your success in building this business? Also, could you outline some indicators regarding the enterprise and wholesale segments that would signal to you that you're on track to achieve this goal? What revenue levels in those areas would suggest you're set to capture the spectrum's value by the end of next year? Thank you.

Certainly, I will break this down into manageable parts. When we discuss expanding our wholesale business, it's important to understand that it's a broad category encompassing various areas beyond just consumer markets. One of these areas is private 5G networks, which I believe has significant growth potential. Recently, we announced an additional contract with the military, marking a notable milestone for us. We see substantial opportunities stemming from our technology, including areas beyond just spectrum. Our capabilities extend from manufacturing to managed services, and our leadership position as rated by Gartner sets us apart from competitors. Nevertheless, I acknowledge that the development of these businesses requires time to establish sales cases, especially in government, where budget cycles can prolong processes. Once they begin to gain momentum, we anticipate significant growth, though I wouldn't expect it to happen immediately. The wholesale sector integrates various elements - for instance, large application providers or operators lacking mobile technology access. Caution should be exercised, as the wholesale business may not experience consistent growth. Similar to our experiences in the enterprise sector, we may face development windows followed by significant breakthroughs. For example, in our Aero business, after investing considerable time to secure initial contracts, we saw substantial bookings and backlog. A similar dynamic will occur with 5G, but it will take time. While I temper expectations regarding the timing, I want to highlight the substantial potential of this business and our strategic positioning to capitalize on it. Now, regarding your second point about the $65 billion valuation, if we consider a stake reflecting around $25 billion to $30 billion in current enterprise value, we are left with over $30 billion in unrealized fair market asset value. With approximately 300 million shares outstanding, this unrealized asset value implies an additional $100 per share that is not currently represented in our market cap if we align with the fair market value of our spectrum assets. Beyond spectrum, we have network assets that hold billions in value, which have taken years to develop, adding to our overall worth. We recognize this is our responsibility to unlock that value. Wholesale represents one avenue, while we are exploring direct satellite opportunities and others. I want to set your expectations that, while we are dedicated to exploring every opportunity, it will take time to realize these prospects fully, and when they do come to fruition, the improvements will be substantial.

And Hamid, just a follow-up there.

Yes, please continue.

Yes, I was just going to say, just to follow up. I recognize that these are big contracts with a long life cycle and it takes time to secure them. So not in the near term, but do you think that by the end of 2025 or the end of 2026, we will see real evidence of that significant growth starting to take shape?

Yes, I should hope so. I mean, 2025-2026 is a very important window for us. I think market conditions are better, and the advancement of AI will drive traffic tremendously and the real-time connectivity to a cloud core, which we are uniquely positioned right now with running on AWS, all software-based. I think the 2025-2026 window is going to be a very important development window for this industry, and we find ourselves in a very fortunate position. So, as it happens, we just have secured enough runway to be able to fund our developments during that window. So, all the stars aligned.

Thanks Hamid, I really appreciate it.

Our next question is from the line of Michael Rollins with Citibank. Please proceed with your question.

Thank you and good morning. You've seen a significant number of retail wireless subscribers. Can you explain why that retail business is experiencing a decline in EBITDA each quarter? Is there a way to improve profitability, even with the current subscriber base? Additionally, I'm interested in understanding the 5G revenue in that segment. Can you break down how much revenue comes from spectrum leases compared to the retail wireless business? Specifically, is the retail business contributing to the capacity in the 5G segment? I'm also curious about how to approach the transfer pricing for the future. Thank you.

I will pass back to Paul.

So first of all, on the sequential EBITDA or OIBDA that you were talking about in Retail Wireless, you've got to take into consideration subsidy costs, in fact, and the costs that we incur on that. And that drives the majority of the variances that you see there. As it relates to your question on the 5G MNO revenue, you are correct that that does include intercompany charges for the subs that are on the MNO. But offsetting that was a third-party lease revenue that we had in prior periods that has been declining, driving that variance. From a standpoint of describing exactly what that number is, we don't talk about that, but you will see that revenue amount grow over time as we load more subscribers on the MNO. And that's a good thing for us, because what we're essentially doing is stop paying MVNO costs and then funding the operations for the MNO.

And just maybe more broadly. So, as you think about that 5G retail business. What is like that medium or longer term progression of margins? Like what's the right margin for that retail side? Recognizing that right now you're paying a bunch of resale costs to third parties, and then eventually, you'll be paying that potentially intercompany as you target more traffic to be on that.

Yes, as we grow and attract more subscribers to our MNO, we expect our margins to increase. This is because many of our costs are fixed and will be amortized and depreciated rather than treated as operating expenses. Therefore, you should see an improvement in margins over time.

At the moment, we have had tremendous good news recently. As recently as just today regarding access to funding and the FCC providing us with a better playing field, which benefits consumers, the market, and our ability to participate in it. We are currently incorporating this information into a revised and updated model. Our previous models did not account for this new information, and now we are addressing that. As time goes on, we will share elements of that model with you. Also, based on earlier comments and questions, this is a very dynamic market. Conditions improve and change frequently. For now, we are pleased to say that margins will improve, and you can expect that. However, regarding the exact level, we ask for some time to work on this and share updates as we progress through next year.

Thanks very much.

Our next question is from the line of Chris Quilty with Quilty Analytics. Please proceed with your questions.

Hamid, I have a question regarding the satellite sector. EchoStar, along with Globalstar and Iridium, chose not to participate in the MSSA, which is the ViaSat-led initiative to consolidate the spectrum of the MSS operators. My two questions are: first, could you share your thoughts on MSSA and your perspective on it? Second, in terms of your strategy to encourage device manufacturers to embrace your direct device chip, what is your go-to-market approach? Considering that we know Iridium and Qualcomm's proprietary chipset effort did not succeed.

Sure. Regarding the MSSA, we don’t feel the need to join that consortium because we have sufficient spectrum resources available on our own. Our situation is more about having a partnership for spectrum availability, which can be complicated for a larger group. We hold a unique position with access to MSS spectrum rights globally, and we also have the same spectrum available both on land and for space in the United States. This gives us a significant advantage with the best rights in the S band worldwide. Therefore, there's no compelling reason for us to participate in that alliance. We are actively working to leverage our rights, which are quite valuable, and our spectrum is largely unused globally and only accessible to us. In contrast, other bands are being utilized and require optimization and adjustments. We are in a very favorable position. Regarding device availability, our emphasis is on 5G, focusing on standard 5G, at least version 17 or 18 and beyond. Everything we develop adheres to 3GPP specifications, simplifying the process for chipset manufacturers who can take advantage of the regular mobile business volume by aligning with standardization. We believe we can tackle both aspects without needing to be part of any other alliance, and we hope time will demonstrate that we can achieve that value.

To clarify, the MSS spectrum bands were not originally designed into cellular chipsets, which has always posed a challenge in integrating those designs at the hardware level. The question then becomes how to incorporate those bands if you are utilizing the MSS spectrum.

There are two main aspects to making a direct-to-device satellite solution possible from a technology and chipset standpoint. First, on the front end, it involves gaining access to the frequency band, which primarily focuses on filtering in the radio. This part is typically less complicated; filters can be added or removed easily. The more challenging aspect is the software involved in establishing standardization, considering factors like delay and Doppler effects. The best approach to tackle these issues is to adhere to the 3GPP standardization, leveraging existing technologies and code. We believe this is the most efficient path forward. Chipset manufacturers should recognize that this will create a significant market opportunity. Once available, this technology will connect billions of people worldwide, eliminating the concept of being unconnected. The potential volume is what drives the economics of chipset development, and manufacturers are actively working on this. By staying within the standards, we believe we can optimize the economic benefits for everyone involved. Operator, there's one additional question in the queue. So let's move to the final question.

Thank you. That will be coming from the line of Sam McHugh with BNP Paribas.

Hey, good morning, guys. Thanks for taking the question. I just wanted to go back on the retail wireless side. I think under the network service agreement with AT&T, you talked about this $5 billion minimum payment over 10 years. Then the wireless business is quite a bit smaller, maybe than we anticipated at the time of signing that deal. So what I'm just trying to understand is, are you at the peak payments to AT&T, or is there kind of as we see customers transition on that, how quickly should we see those roaming payments fall, if you follow me? Is there a catch-up payment if you don't hit the minimum payment for them? And just had a bit of a timing and saying of that deal would be too helpful. Thank you.

Yeah. Hi, Sam. John here. Thanks for the question. So as we've discussed before, we rely on T-Mobile's network and as well as AT&T's network to provide capacity for our subscribers. We're really on track with both agreements. T-Mobile was shaped in one direction; AT&T, a little bit in the other direction. We're on track with making our minimum commitments there. I'd say both relationships are healthy and productive. We really have a unique capability that I think isn't highlighted enough in terms of how we're able to go to market. When we have a customer on-net with us, that can access more towers than any other service because a subscriber can connect seamlessly to T-Mobile's network as well as AT&T's network in conditions where we may not have the signal strength that we want to provide the best customer experience. So it’s really an asset. The way you phrased the question was more on the side of a liability, but we think it's really a competitive element that we have as it relates to our network and our overall CapEx. We're not racing to spend more CapEx. We're focused on making sure that we have a P&L mindset. And that now happens down to the site level. We're very focused on leveraging these two unique agreements, both in and out of market to make sure we have the right economics to acquire profitable subscribers. We're continuing to launch markets and working with our partners is a big part of that.

Thank you, everyone, for participation. And we can now close the call, operator.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.