No ‘Grand Strategy’ for S-Band Acquisition, Says Dish’s Ergen

Dish Network’s recent S-band acquisition efforts aren’t part of “a grand strategy at this point,” said Dish CEO Charlie Ergen during its Q4 conference call Thursday. Dish recently agreed to buy bankrupt S-band licensee DBSD, though the deal still needs bankruptcy court approval. “I think spectrum has value,” Ergen said. Using that spectrum and acquiring more spectrum that fits together are both ways to increase the value of that spectrum, he said. The recent acquisition efforts have raised speculation among analysts that Ergen is planning a wireless network and/or seeking new ways to complement the core DBS business with Internet-delivered programming.

Dish looks at each spectrum acquisition independently because it has value “just as an asset,” though a strategic buy is preferable, said Ergen. The company looked at DBSD independently and has found some overlap as a “satellite-related company,” he said. The DBSD business plan has taken a little longer to get going, which is why it’s in bankruptcy, he said. The company would likely need additional capital from Dish, though Ergen declined to say how much because the company hasn’t been acquired yet. Ergen has shown willingness to acquire spectrum even without a clear plan in mind. The company paid $712 million for 168 E-block FCC spectrum licenses in 2008 and has yet to make real use of them.

Dish’s purchase of a controlling interest in Liberty-Bell, a holding company that owns a CLEC and interexchange carrier in Denver, allows for testing of bundling opportunities, said Tom Cullen, Dish executive vice president-programming. Dish will test the bundling of wholesale broadband and voice service’s with Dish’s programming, he said. The testing will likely move forward in certain markets “in the next couple months,” he said.

Dish Q4 revenue grew 8.2 percent from a year earlier to $3.21 billion. The company lost 156,000 subscribers in the quarter, bringing Dish’s total subscribership to 14.1 million. Profit rose 41 percent to $252 million, said Dish.

EchoStar scrapped its bid for bankrupt TerreStar Networks to focus on a proposed $1.3 billion purchase of Hughes, which is more solid, Ergen said on a separate conference call on the results of EchoStar, of which he’s the chairman. EchoStar was spun off from Dish and had agreed to lend TerreStar $75 million shortly after the company filed for bankruptcy last fall, and this year agreed to buy Hughes and its fleet of satellites and broadband service. TerreStar has yet to come up with a compromise between EchoStar and a group of junior noteholders fighting the deal. The sides are allowing TerreStar keep control of the bankruptcy case through March 9 under an agreement approved by Bankruptcy Judge Sean Lane. Under the agreement, TerreStar would have received exclusive access to EchoStar’s 1.4 GHz spectrum. EchoStar lent TerreStar $50 million and took $50 million in additional secured payment-in-kind notes.

EchoStar, which will assume $1.8 billion in Hughes debt, is willing to “leverage up” to buy a satellite fleet and broadband service that can reach 10 million to 20 million U.S. homes with the launch of another satellite in mid-2012, Ergen said. Spectrum investments are “very speculative,” and EchoStar is “waiting for TerreStar management to decide what to do to get out of bankruptcy,” Ergen said.

TerreStar’s plan called for secured noteholders like EchoStar to swap more than $850 million in debt for nearly all the equity in a reorganized company. More-junior creditors would have received just pennies on the dollar, and current equity holders would have gotten nothing. Besides EchoStar, hedge funds including Harbinger Capital Management -- and, according to Credit Suisse, AT&T -- also are seeking control of the spectrum. AT&T had planned to resell TerreStar’s satellite smartphone.

Hughes’ HughesNet broadband service has been limited by equity investors, who preferred a conservative strategy, Ergen said. HughesNet, renamed from “DirecPC” in 2006, also suffered from technology that lagged behind the high-speed services offered by cable and DSL, he said. Hughes plans to launch a satellite capable of 100 Gbps throughput by early 2012, a significant increase from the 10 Gbps delivered by its Spaceway-3 satellite. Hughes is deploying a multi spot beam Space Systems/Loral SSL-1300-based Ka-band satellite.

"This is a much better strategic focus for us and a better fit for what we can do today,” Ergen said. “We think we can go out there and be more efficient” once the new satellite goes into service. Hughes could seek partners to introduce the service in India and Latin America, including Brazil, as well as in the U.S., Ergen said. Hughes also could seek deals with ViaSat’s WildBlue to share back-up services and infrastructure, he said. “We could do things that benefit” both companies, Ergen said.

EchoStar will likely pull back on its ViP TV service, which provides more than 300 channels, CEO Michael Dugan said. It was put together partly by converting SES Americom Prime customers served by C-band to a Ka-band offering from AMC-16. ViP targeted regional telcos, but has had “limited sales,” Duggan said. The AMC-16 satellite might be best served by providing capacity for a HughesNet expansion into Latin America, he said. EchoStar owns 49 percent of Dish Mexico.

The proposed acquisition of Hughes, coupled with recent purchases of Move Networks and Sling, may turn EchoStar into a major broadband services provider, Ergen said. Move Networks developed adaptive bit-rate technology and ran a video streaming service before putting itself up for sale last year. Hughes could help EchoStar reduce its reliance on one-time affiliate Dish Network for revenue. Dish remains EchoStar’s largest customer. “These are building blocks that are all going together, and you want to put them together in a cohesive way,” Ergen said.