Dish Investors Ignore Ergen Failures as Spectrum Value Grows
Dish Network Corp. (DISH) Chairman Charlie Ergen has failed at least four times in attempts to transform his company into more than just a satellite-television provider. Judging from the share price, investors don’t mind.
The stock has almost tripled in value over the past three years, despite a string of doomed deals that were meant to build Dish into a wireless company. In Ergen’s most recent move last week, the company said it’s dropping a $2.2 billion offer to acquire airwaves owned by the bankrupt LightSquared Inc.
The failed LightSquared bid follows aborted efforts last June to acquire Sprint Corp. (S) and Clearwire Corp., two companies that would have given Ergen his own wireless network. Dish also shut down the rest of its Blockbuster retail stores at the end of last year and scrapped a plan to start a Blockbuster-branded streaming video service that would challenge Netflix Inc.
Ergen’s dealmaking foibles haven’t undermined shareholders’ faith in the billionaire, who co-founded the satellite company more than 30 years ago. Even while making a few wrong turns, Ergen has steadily accrued billions of dollars of wireless airwaves, said Marci Ryvicker, an analyst at Wells Fargo & Co. in New York. Though Dish has yet to use that spectrum to become a wireless carrier, the opportunity is still there, she said.
“Charlie’s whole philosophy is to keep his options open,” said Ryvicker, who has the equivalent of a buy rating on Dish shares. “He has an asset -- spectrum -- that continues to appreciate in value. You are owning Dish on the belief that he’s going to monetize it. You’ve put your faith in his ability to unlock that value.”
Bob Toevs, a spokesman for Englewood, Colorado-based Dish, declined to comment.
Those prospects helped the stock grow about four times faster than the Standard & Poor’s 500 Index over the past three years, even as the company has lost about 84,000 satellite-TV subscribers during that time span. Dish fell 2.2 percent to $55.95 at the close in New York today.
In his mission to become a wireless carrier, Ergen is attempting a complex and risky move. It would mean building on its satellite-TV distribution -- a market where it has 14 million subscribers -- and challenging entrenched mobile-phone competitors such as AT&T Inc. (T) and Verizon Communications Inc. (VZ)
The benefit is Dish could offer television over wireless networks, letting customers see programs while they’re away from their home satellite dishes. It also could tap burgeoning demand for mobile data, which users need to surf the Internet and watch videos on mobile devices. Satellite revenue, in contrast, has slowed in recent years: Dish’s sales rose an estimated 1 percent last year, following a 2 percent gain in 2012.
“What you try to do strategically is put yourself in a place where you have a lot of optionality,” Ergen said in November. “It helps us potentially transform the company going forward, because we know we are in a mature business.”
Dish, the third-largest U.S. provider of pay TV, built its stockpile of wireless airwaves by acquiring spectrum from the bankrupt companies DBSD North America Inc. and TerreStar Networks Inc. It spent about $3 billion in those deals, which were completed in 2012.
The company then attempted to gain more spectrum last year by acquiring Clearwire, an offer that valued the wireless-network operator at as much as $6.4 billion. Ergen simultaneously made a $25.5 billion tender offer for Sprint, which would have given Dish the nationwide network it needs to deliver video over mobile devices.
Losing to SoftBank
Dish ended its bid for LightSquared because the bankrupt company missed “milestones,” according to a termination notice from the satellite-TV provider. Lawyers for LightSquared argued last week that the move may be a gambit to drive down the price of the wireless broadband assets. Still, the move casts doubt on future deals that Ergen may attempt, according to a report from Barclays Plc analysts Kannan Venkateshwar and Amir Rozwadowski.
“After Sprint, Clearwire and now LightSquared, the company’s future spectrum monetization strategies are likely to be viewed with more skepticism,” Venkateshwar wrote in a note.
Dish also abandoned a plan to use Blockbuster’s retail stores to sell mobile phones after the company failed to enter the wireless market quickly enough, according to people familiar with the matter. That made the whole business hard to justify and Dish announced plans in November to shut down the video-rental chain, which it acquired out of bankruptcy in 2011. The company had already been gradually closing stores by the hundreds.
“When your lease runs out on the stores, you can’t re-up because you can’t make enough money from just selling DVDs,” Ergen said in October 2012.
Dish had also intended to challenge Netflix with a Blockbuster-branded movie-rental service. After failing to acquire enough content for the product, Dish scaled back its ambitions and made it a service for existing Dish satellite subscribers.
The stumbles won’t stop Dish from trying to accumulate more spectrum. The company will attempt to acquire a swath of airwaves called the H block on Jan. 22, when the U.S. government puts the spectrum up for sale.
Dish has already offered to bid at least $1.56 billion in the auction, meeting a minimum threshold set by the government. In exchange, Dish asked the Federal Communications Commission to alter the restrictions on airwaves it already owns, making them more suitable for mobile video and music streaming on phones and tablets. Regulators granted the rule flexibility last month, increasing the value of Dish’s airwaves.
Once the auction is complete, Dish “can start talking to people again,” Ergen said. That could mean making an acquisition bid for wireless carrier T-Mobile US Inc. (TMUS), he said, or forging a partnership with a mobile-phone company, including possibly Sprint.
“Acquiring a company, selling our company, merging, partnering -- those are all on the table,” Ergen said.
Long-term investors also are looking to a potential Dish merger with DirecTV (DTV), the largest U.S. satellite-TV provider, according to Todd Lowenstein, a portfolio manager at Highmark Capital Management. A DirecTV merger is one of many options, Dish Chief Executive Officer Joseph Clayton said last week on Bloomberg Radio, though it’s not the company’s priority.
“Our primary focus is on running our core business -- the satellite pay-TV business -- and entering into the wireless space as we move forward,” Clayton said.
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