Dish Network (DISH, Financial) is having a good time with its share soaring 23%, thanks to the Federal Communication Commissions (FCC) Auction 97. While other telecom players are seeing their share tumble, Dish’s valuation has gone up considerably. The reason why Dish is sailing high is that the company holds 56 MHz of spectrum that could be put to use for offering wireless service. The spectrum can cover a population of 318 million across the country. So what does Dish intend to do with these valuable frequency?
Options that Dish has
Dish does not operate in the U.S. telecom market. It is an American satellite service provider, but is looking to diversify into telecom. Dish is participating in the current AWS-3 auction. It has an agreement with the FCC that if it does not put to use its spectrum by 2017, then it will have to relinquish the asset. Thus it is important for the company to make a decision regarding what it really wants to do with the airwaves.
Dish has a number of options in hand. It needs to weigh them one by one and decide which one would be the most lucrative for the company and help it maximize shareholders’ return. First, the company can put its spectrum for sale to any of the existing wireless providers for a good price. Its spectrum asset, which is the lifeblood of a wireless carrier, can be utilized by existing players such as T-Mobile (TMUS, Financial). Currently T-Mobile, the fourth largest carrier in the U.S., has a spectrum holding of 69 MHz. So it might consider acquiring Dish’s airwaves.
Dish also has the option of leasing the airwaves, and this could prove highly beneficial if the price of spectrum goes up even higher. An analyst of Citi Research valued Dish’s spectrum at $25 billion recently this summers. The valuation was done based on the spectrum price given at previous auctions. However, spectrum price at the ongoing FCC auction has increased considerably. And based on this higher-than-expected price of the wireless frequency, a BTIG analyst valued Dish’s spectrum at $34 billion or $70 a share. However, the option of selling the airwaves or putting it on lease is unlikely as Dish has never shown interest to do so.
What's Dish is up to?
Dish has always been keen to make a name in the U.S. wireless arena and offer telecom service. To do so, the company can use the spectrum and make a wireless network service of its own. Dish has tried to do so, but stepped back due to the high upfront cost. So the other option left with the company is that it could enter into a partnership or collaboration with an existing telecom player. Apart from this, it can even strike a merger or acquisition deal with a telecom company.
Dish has tried doing this in the past. When Sprint (S, Financial) had made a bid to acquire complete stake in Clearwire, Dish made a counterbid. The very next year when Softbank was pursuing Sprint, Dish got in with a counter offer again. However, it decided to step back sensing the strong financial position of the Japanese telecom player. Dish also expressed its interest in T-Mobile. But Sprint and T-Mobile got into merger talks with each other, and the satellite provider withdrew once again.
But now after talks between Sprint and T-Mobile have ended, Dish’s hope to join forces with the latter has re-ignited. Charlie Ergen, Chairman of Dish, plans to talk to T-Mobile’s parent Deutsche Telekom after the FCC auction regarding a possible merger. Deutsche Telekom has not shown interest regarding selling its US subsidiary, but it might meet Dish to discuss the opportunity. The upcoming days are going to be interesting for the U.S. telecom industry.
