Has Dish Added Huge Value With An FCC Win?

Dish Network (NASDAQ:DISH) recently won FCC approval to use its spectrum for ground-based cellular network. This move will allow the company to better compete in the saturating U.S. pay-TV market by arming it with a viable bundling option. Unlike its cable counterparts, Dish Network has focused purely on pay-TV rather than bundling broadband and telephone services with it. It hasn’t been able to match the performance of its satellite rival DirecTV (NASDAQ:DTV) as the latter has a more affluent subscriber base and some exclusive services such as NFL Sunday Ticket. However, Dish has started to make some strategic investments lately including the acquisitions of Blockbuster and wireless spectrum assets. While we have mentioned this before, we’ll briefly remind investors how much value Dish can add to its stock with its wireless assets given the FCC approval.
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It is likely that Dish will go with the option of partnering and hosting its network on a third-party infrastructure. The company has been in talks with some potential partners, and Sprint (NYSE:S) seems to be particularly interested. Emboldened by the recent deal with Japanese carrier Softbank, Sprint is looking to make use of its surer financial footing to enter into potential partnerships with spectrum holders. The carrier has talked with Dish in recent months about a potential deal that will put Dish’s idle satellite spectrum to use in providing a wireless mobile service, according to Bloomberg. ^[1] Dish might enter a revenue or profit sharing agreement with Sprint, or some other partner, and market the wireless service under its own brand.

The potential pricing can be estimated by looking at what ViaSat is offering. ViaSat offers satellite broadband and charges $50 per month for 12 Mbps service with 7.5 GB data cap. ^[2] For 25 GB data cap, the pricing is much higher at $130 per month. ^[3] Given that in urban areas the broadband service is available from cable and telecom companies at much more attractive terms, this satellite broadband service will find its value in rural and far out areas. Given the lower spending capacity of the rural population, the most likely plan that they’ll go for is around $50 per month in our view.

We can assume this to be benchmark “revenue per broadband subscriber” for Dish Network’s service, although bundling with its pay-TV service is likely to lead to lower pricing. Dish could earn an incremental $2 billion in revenues if it can gain 3.5 million broadband subscribers (25% of its current pay-TV subscriber base). However, the company will need to share a substantial portion of profits with the infrastructure provider, leading to lower margins on broadband. This is just one part; it is highly likely that Dish may launch data and voice services on its network, creating more value than what we estimate.

If we simply look at the company’s spectrum valuation, several analysts are estimating its value skyrocketing to $12 billion as a result of FCC approval. ^[4] Given that Dish Network has market capitalization of between $16 billion and $17 billion, a $12 billion valuation of its spectrum holdings could mean a premium of perhaps 50% over what the market is estimating currently. That could be a huge boost to the value of Dish’s assets and we have not factored this in at this time.

Our price estimate for Dish Network stands at $36.20, roughly in-line with the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Sprint Is Said To Suggest Dish Partnership, Bloomberg, Dec 7 2012 [↩]
2. ViaSat prices satellite broadband plans, calls them Exede, The Verge, Jan 20 2012 [↩]
3. ref:3 [↩]
4. Dish Network Wins a $9 Billion Spectrum Prize, The Wall Street Journal, Dec 12 2012 [↩]