Dish’s Airwaves Play Needs U.S. Buy-in to Pay $5 Billion
Dish Network Corp. (DISH), trading at a 13-year high, is on its way to creating $5 billion or more in added value from a series of airwaves gambits that position the satellite-TV provider as a force in mobile broadband.
It just needs a little help from U.S. regulators.
Dish paid $2.78 billion in 2012 for two satellite companies’ airwaves that it’s readying for use by ground-based smartphone networks, and pledged to bid $2.2 billion at an auction for bankrupt LightSquared Inc.’s mobile frequencies.
Now Dish is offering the Federal Communication Commission a deal: It will ensure the success of a U.S. airwaves auction in January, by setting a price floor of $1.56 billion, if it’s allowed to alter uses for airwaves it already has, which would make them more valuable.
“It’s elegant,” Paul Gallant, Washington-based managing director for Guggenheim Securities LLC, said in an interview. “It aligns most of the politics needed to push through the proposal, and improves the company’s spectrum position.”
The mystery is whether chairman and co-founder Charlie Ergen’s intent is to build a wireless network, find a mobile partner such as AT&T Inc. (T) or Verizon Wireless to lease his inventory, or eventually resell the airwaves.
Some analysts see upside in any of the three.
Dish’s value could increase by $24 to $37 a share if it wins the January auction, the LightSquared frequencies and its flexibility request, Amy Yong and Andrew DeGasperi, New York-based analysts with Macquarie Equities Research, said in an Oct. 15 note.
With 218 million shares outstanding, that would amount to an increase in market capitalization of $5.24 billion to $8.07 billion. Dish dropped 61 cents to $48.67 at 4 p.m. New York time.
Ergen has said he sees mobile broadband as a potential new market for the third-largest U.S. pay-television provider, based in Englewood, Colorado. Dish has struggled to find new customers as Americans watch more video over the Internet.
North American companies’ revenue from wireless data grew 176 percent over five years, to $96.4 billion in 2012 from $34.9 billion in 2008, according to data compiled by Bloomberg Industries.
Dish says it wants to compete. FCC regulatory flexibility “is critical to Dish’s successful deployment of a terrestrial broadband network,” the company said in a Sept. 10 filing.
Jeffrey Blum, Dish senior vice president and deputy general counsel, said in an e-mail FCC action “will enhance spectrum utilization and serve the public interest.”
Still, Ergen has analysts guessing. “What he does is a question mark,” Jeffrey Silva, a Washington-based analyst with Medley Global Advisors, said in an interview. “What’s more certain is what he won’t do: build an expensive network.”
Dish will avoid the dicey arena where third- and fourth-largest providers Sprint Corp. and T-Mobile US Inc. (TMUS) struggle against market leader Verizon and No. 2 AT&T, Silva said.
In negotiations with the FCC last month, Dish agreed to join an arrangement to help small wireless carriers obtain handsets that are made to work on AT&T’s airwaves and not theirs. That has been a priority of Acting FCC Chairwoman Mignon Clyburn.
Dish, as part of that agreement, said it would limit power on some airwaves to reduce the chances of interference on nearby frequencies held by companies including AT&T. The deal will be voted on the agency Oct. 28.
Dish’s lowered-power commitment was contingent on the FCC relaxing deadlines to build networks and allowing the company to make other use of the satellite airwaves it bought in 2012, the company said in filings.
Dish’ assurance of a minimum bid for the January auction helps meet a policy goal for the FCC: ensuring that the sale of the so-called H Block doesn’t fail with a bid only from Sprint Corp. (S), or with unacceptably low offers. The sale is intended to raise money to build a national network for emergency workers.
One FCC member, Jessica Rosenworcel, had opposed a January auction, saying a later date would attract more bidders and raise more money.
The FCC acted with “unseemly haste” to cobble together a “backroom deal” on handset access, NTCH Inc., a closely held wireless carrier that provides service under the Clear Talk brand, said in a Sept. 30 filing.
NTCH has challenged the FCC’s decision in 2012 to let Dish use the airwaves for mobile broadband service, and has said the frequencies should be auctioned off.
Letting Dish link a promise to make an auction work with relaxing restrictions on how airwaves can be used “sets an extremely bad precedent and suggests the commission can be paid off to bend its rules,” NTCH said in the filing.
In the FCC’s view, the arrangement “advances the significant public interest goals of making more spectrum effectively available for mobile broadband,” Justin Cole, an agency spokesman, said in an e-mail.
Dish’s flexibility request is for frequencies it already owns, which it could use for receiving videos and messages after buying the LightSquared airwaves to carry data going from smartphones to towers. The use may not pose the interference risk to navigation gear that led U.S. authorities to block LightSquared’s proposed satellite-broadband network last year.
By reducing the potential for interference with the H Block frequencies, switching uses from sending to receiving data would increase that spectrum’s value, said Fred Campbell, who directs a communications program at the Washington-based policy group Competitive Enterprise Institute that says it is for free markets and limited government.
“It’s harder for anyone other than Dish to value the spectrum,” Campbell, a former chief of the FCC’s wireless bureau, said in an interview. “Dish has an information advantage.”
Ergen’s 2012 airwaves acquisition and the LightSquared purchase could be worth two to four times the approximately $5 billion they cost, Walter Piecyk, an analyst at BTIG LLC in New York, said in a blog posting last month.
“Investors are just going to give him credit for creating more value. There are so many ways,” Yong said of Ergen in an interview. “No one really knows what the end game is.”
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