Push Comes to Shove for Dish's $3 Billion Airwaves Buying Spree

  • Dish and leader Charlie Ergen face use-or-lose deadlines
  • Satellite TV company spent years buying airwaves that sit idle

Dish Network Corp. spent more than $3 billion five years ago on a trove of airwaves to exploit the mobile video revolution that’s vanquishing traditional media services like the company’s namesake satellite-TV product.

But the radio waves sit idle, and the company led by its founder, billionaire Charlie Ergen, is running into government demands that it use the spectrum. Dish all but admits it won’t meet a March 7 deadline that will trigger a federal shot clock requiring a working network by 2020, or risk losing the right to use the airwaves for lucrative smartphone service.

“The urgency is there to react, or do something,” said Amy Yong, an analyst with Macquarie Capital USA Inc. She said Ergen can “find a partner, build on his own, or sell.”

The choices arrive at an unusual inflection point for wireless deals. The conclusion of a year-long federal airwaves auction, expected in April, will end a quiet period designed to prevent collusion among wireless providers such as AT&T Inc., Verizon Communications Inc. and T-Mobile US Inc., which all registered as potential bidders.

That could set off discussions about mergers and deals for airwaves, such as Dish’s.

FCC Meeting

“I couldn’t be more excited about the period that’s going to come up when this auction is over,” T-Mobile’s Chief Executive Officer John Legere said Feb. 14, when asked about consolidation. Legere said that “you know that Dish needs to do something. Regulatory wise, they have to do something with their spectrum.”

Ergen’s recently been to Washington, where he met with Ajit Pai, Republican chairman of the Federal Communications Commission which sets airwaves rules.

“I would leave it to him to give any specifics. But broadly speaking we just talked about the company’s business plans and what he saw as opportunities in that highly competitive marketplace as he saw it,” Pai said in interview Feb. 10.

Asked whether Dish’s impending deadline was discussed, Pai replied, “I don’t believe that came up.”

Leading U.S. wireless carrier Verizon needs to cope with the possibility of rising network congestion from its newly unveiled unlimited data offer for mobile subscribers, and it could acquire or lease spectrum from other owners with idle airwaves including Dish, Bloomberg Intelligence analysts Matthew Kanterman and John Butler said in a Feb. 14 note.

Selling Spectrum?

“Dish has made no attempt whatsoever to develop the spectrum, so all of the eggs would appear to be in the basket of selling the spectrum,” said Craig Moffett, an analyst with MoffettNathanson LLC. He said “it’s not entirely clear that Verizon wants this spectrum -- they’ve said repeatedly publicly that they don’t.”

Richard Young, a Verizon spokesman, declined to comment. Verizon is contemplating more than a dozen purchases -- both large and small -- now that Republican Donald Trump has become U.S. president, Bloomberg News reported Feb. 8. Trump-appointed regulators may be more likely to allow telecommunications deals than administrators under President Barack Obama, whose administration stopped several mergers.

Dish is seeking other ways to make money as its satellite TV business struggles with a five-quarter streak of subscriber losses. In addition to the airwaves at issue next month, it has bolstered its spectrum holdings by taking part in government auctions, for instance spending $712 million in 2008 and another $1.56 billion in 2014.

FCC Deadlines

The deadlines facing Dish were imposed by the FCC in 2012 as Dish paid more than $3 billion for rights to airwaves held by two bankrupt satellite-communications companies. The U.S. regulator imposes use-it deadlines to discourage speculation in airwaves, which are a limited resource, and promote the introduction of services that benefit the public.

In this case, Dish next month needs to offer service to 40 percent of the population covered by its nationwide set of frequencies. If it doesn’t, a requirement to cover 70 percent of the population moves up by one year, to 2020.

Ergen in July told investors “it is not logical” to meet the 2017 deadline and said he considers 2020 to be the first build-out deadline. “We believe that we’ll build out into a business that’s good and we think we potentially will do that with others, right? But there are many options available to us,” Ergen said.

Options include a “fail-safe” of building just enough of a network to meet FCC qualifications, Ergen said. He may address the question when Dish again reports earnings Feb. 22.

Dish has a sometimes contentious relationship with the FCC, sparked in part by its engagement with two smaller companies in an airwaves auction that ended in 2015. Dish spent about $9.8 billion to fund the partners. The FCC decided the companies didn’t qualify as small businesses that deserved help and the agency denied $3.3 billion in discounts. The matter is now before a court after the smaller companies sued.

Read more: Bloomberg Intelligence on the spectrum auction

At the time, the gambit drew unfavorable attention from a member of the FCC’s Republican minority -- Ajit Pai. He said Dish’s action “makes a mockery” of the FCC processes, and he told lawmakers he was “appalled that a corporate giant has attempted to use small business discounts.” The change of administrations led to Pai ascending to FCC chairman.

Bob Toevs a spokesman for Englewood, Colorado-based Dish, declined to comment on Ergen’s recent meeting with the chairman. Toevs said Dish works in a heavily regulated industry and visits to the nation’s capital are common.

Ergen’s trips to Washington are part of a charm offensive as he tries to convince lawmakers that he’s laying the groundwork for the mobile broadband future, said Tim Farrar, an analyst with TMF Associates LLC.

“He doesn’t want a chorus of disapproval from Congress members who decide to chime in, and the best way to do that is to have a plan,” Farrar said. “Pai has gone after Charlie before and he works for an administration that’s keen on building infrastructure and employing people.”

Ergen will need to show good faith if he’s to get more leeway from the FCC, said Moffett, the analyst.

"If he has any hope of getting an extension he’s going to have to show he’s building furiously and getting as close to meeting the deadline as possible,” Moffett said.