Dish Seen Paying to Keep Spectrum After FCC Rejects Discount

  • Company has until Thursday to provide letter of credit to FCC
  • Dish fighting for $3.3 billion discount to pursue wireless M&A

Dish Network Corp., after being denied a discount on $13.3 billion of airwaves it won in a federal auction, will probably now pay up to keep the spectrum.

That’s the consensus among analysts surveyed by Bloomberg as the second-largest U.S. satellite-TV provider faces a deadline Thursday to provide a letter of credit to the Federal Communications Commission. The FCC in July rejected Dish’s request for $3.3 billion in abatements to its small-business partners in the auction -- SNR Wireless LicenseCo LLC and Northstar Wireless LLC. Final payment is due on Dec. 16.

Walking away from the spectrum isn’t a top option for Dish Chief Executive Officer Charlie Ergen, who has amassed a $50 billion treasure chest of U.S. airwave licenses. That strategy has been key to his plan to shift from a satellite-TV provider in decline to a formidable wireless network operator that will compete with Verizon Communications Inc. and AT&T Inc. in services like mobile video.

Dish has been fighting for the discount because spending the extra money on airwaves means there’s less cash to spend on acquisitions to create a mobile network. It may also lead the company to take on more debt, which would put pressure on its credit rating, according to Bloomberg Intelligence. Moody’s Investors Service said in August it may lower Dish’s rating -- already three levels below investment grade. Paying the $3.3 billion would represent “a significant drain on liquidity and leveraging event,” Moody’s said.

“People want some resolution, they’ve been waiting to see how Charlie will deliver on his plan,” said Amy Yong, an analyst with Macquarie Capital USA Inc. “We’ll get rid of some of the uncertainty. People can start thinking about how to value the spectrum and the stock.”

Dish shares have dropped 9.6 percent since the FCC rejection on July 22, and were trading up 0.2 percent to $58.44 at 11:17 a.m. in New York. The bonds due November 2024, which have dropped 11.4 percent since the FCC ruling, fell 13 cents on the dollar to 84.5 cents during that period.

Ergen can also continue his fight with the FCC to obtain the $3.3 billion discount, Yong said.

Dish has said it followed the auction’s rules, and in September SNR and Northstar asked a court to overturn the FCC’s decision. Dish and its partners will struggle to persuade the court that the agency erred, said Matthew Schettenhelm, an analyst at Bloomberg Intelligence. Arguments are due after the new year in the case filed in the U.S. Court of Appeals for the District of Columbia Circuit, he said.

During an Aug. 5 conference call, Ergen blamed the FCC for its unwillingness to give Dish the discount, saying the lack of support from the government is dissuading his company from pursuing big takeover deals and competing with large phone companies. He said he may even consider splitting the company in half -- one side would include the satellite-TV business and the other would comprise airwaves that could be sold or leased with some tax advantages. Still, he added, he would prefer to pursue his wireless ambitions.

“In my heart, I think the best long-term thing for our shareholders would actually be to go compete with the big guys,” Ergen said.

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