DISH Network CEO's Cost Savings Claims Don't Add Up

Over the course of the past six months or so, a debate has swirled around DISH Network (NASDAQ: DISH). The company's co-founder and board chairman Charlie Ergen has suggested the organization could build the infrastructure necessary to power an entire wireless telecom network for a modest $10 billion. The key, he explained, would be the utilization of software rather than hardware, which lowers upfront costs between 40% and 60%. Meanwhile, MoffettNathanson's senior analyst Craig Moffett unofficially led a chorus of critics suggesting that estimate was alarmingly low. In his words, "The idea that DISH might spend $10 billion (their own estimate on previous conference calls) and then somehow be finished is, well, just silly." Moffett underscored his assessment by adding: "Verizon spends $15 billion annually to maintain a network that they've already built."

The financial truth is likely somewhere in between. While $10 billion might underestimate DISH's total cost of getting into the wireless business should Sprint and T-Mobile finally consummate their long-awaited union, virtualized networks rather than dedicated hardware with a relatively short lifespan probably does represent some degree of cost-savings.

The problem is that roughly two-thirds of AT&T's (NYSE: T) wireless network is now virtualized, but the move hasn't measurably lowered the telco's total capital spending or operating costs.

Source Fool.com