Dish Aims to Be Wireless Player, but Ability to Pull It Off Seen Less Clear

With DOJ's justification for approving T-Mobile/Sprint largely hinging on Dish Network's ability to become a national wireless player (see 1907260071), wireless industry watchers tell us that whether Dish can pull that off is a big question mark. "Wireless is a very tough business to get right -- many companies have tried and failed," said wireless analyst Jeff Kagan.

In a call with analysts Monday, Dish Chairman Charlie Ergen said becoming a national wireless player is "challenging," but the company has the infrastructure and a history of being a business disruptor. "This is not our first rodeo," he said. "We will be a competitive threat."

Wall Street has concerns. Dish could become a national wireless carrier but faces an uphill battle and will need partners, Cowen analyst Greg Williams emailed us. In a note to investors last week, Cowen said there's high operational risk in trying to compete against the big three carriers, but the T-Mobile/Sprint deal should entice Dish partnerships or even an outright Dish sale. It said the $7 billion to $10 billion needed for a nationwide network could come from a variety of sources, including a lien on its spectrum and tech players looking for "a comprehensive 5G-to-cloud wholesale solution."

Moody's said Monday it's putting a variety of Dish ratings on review for downgrade, due to "already limited financial capacity for higher debt" mixed with the $5 billion in spending it will have to do for Sprint's prepaid wireless service business and wireless spectrum assets. Becoming a competitive fourth mobile carrier "will be expensive and laborious," it said. The ability to undercut larger carriers to gain scale would also put pressure on Dish's margins and result in negative cash flow, and it's already facing growing pressure on its legacy direct broadcast satellite business, it said.

The deal's timing and changing telecom technology could provide some advantages to Dish, but many of the same trends will also help wireless competitors, Strategy Analytics analyst Susan Welsh de Grimaldo told us. She said emerging eSIM technology could lower subscriber acquisition costs, which is important to Dish, but also makes it easier for users to switch providers. She said while Dish is establishing itself, cable could continue to grow as a strong player in its own markets.

Key Dish challenges will be differentiation from competition, said Welsh de Grimaldo. She said it emerging as an infrastructure-based 5G player in three years or so would roughly coincident when 5G would be getting to the mass market, so it wouldn't be missing out on that wave. While other carriers already are trying now to take advantage of first-mover opportunities in 5G, many subscribers will not have upgraded until then, she said. In the prepaid space, Dish will be fourth, well behind AT&T, T-Mobile and Tracfone and will need to be a disruptive player to gain share, she said.

New Street’s Blair Levin told investors T-Mobile’s problems are far from over. "The Dish deal and DOJ’s blessing improves the odds of the merger surviving the state challenge but we think it unlikely at this point that the states respond by withdrawing the lawsuit,” Levin said: “While the DOJ may convince a few of the current litigants to withdraw, we think a critical mass of states will continue to pursue the litigation. Those states will likely believe the DOJ complaint reinforces their claims of antitrust harms and that, in terms of the efficacy of the fix, there remain multiple risks to relying on DISH to provide a replacement of the competitive dynamic Sprint brought to both the retail and wholesale markets.”

New Street’s Jonathan Chaplin said buying Boost might be a good investment for Dish. “Our preliminary conclusion: the business is probably worth roughly what they paid for it at the outset, but it could be worth considerably more once Dish deploys their own network,” he said.

It's not clear whether Dish will be a successful new entrant, American Enterprise Institute Visiting Fellow Dan Lyons blogged Monday. Wireless telephony is a scale-driven business, and there are questions whether Dish has a viable path forward against the larger incumbents, he said. “While the antitrust suit brought by thirteen state attorneys general remains a potential obstacle, Friday’s settlement significantly increased the likelihood that Sprint has finally found its white knight -- and in the process may have breathed new life into a second flailing telecom provider,” Lyons said. “Dish may finally have the opening it needs to break into the wireless business.”

Recent cable industry entrants into wireless have been defensive competitors -- trying to use wireless offerings to shore up their existing customer bases -- rather than offensive competitors, trying to own the wireless space, Kagan said. Ergen seems intent on being the latter, and has spent a year or more focused on the wireless industry and positioning Dish to jump in, Kagan said.

But Dish lacks experience in wireless, and developing that could take awhile, with Dish spending months or even a couple of years hovering somewhere between the major wireless carriers and the cable operators, "aggressively trying" to move up, Kagan said. Ergen will "stumble and stub his toes" at least in the beginning, he said. It's not clear if Dish has the assets necessary, and it might end up partnering with another company with interest in the wireless space, such as Amazon, Facebook or Google, to help get faster growth, he said.

In a call with analysts Monday, Dish Chief Financial Officer Paul Orban said it should be able to pay for Boost with cash on hand when the deal closes. Ergen called Boost a key element to jump-starting Dish’s wireless plans. He said the deal aligns the company, which had been focusing on a narrowband IoT network, with FCC goals and “where I think the country wants to go” regarding 5G. He said its narrowband IoT resources will be redeployed for 5G. “We’re going to need help” in terms of towers, backhaul, and other assets, Ergen said. “We don’t intend to reinvent it and rebuild it,” he said.

Asked about funding for Dish's wireless ambitions, Ergen said “a lot of different places” including cash on hand, its cash flow, Boost’s cash flow, “and I’m willing to put more money into this company.” He said its 600 MHz spectrum assets are fallow and could be a short-term revenue opportunity via leasing. Dish said with its well-over 100 MHz of spectrum, particularly downlink spectrum, it has more than adequate resources for both a consumer wireless business and room for numerous 5G applications from precision agriculture to autonomous vehicles.

Asked whether the T-Mobile/Sprint deal might help resolve the designated entities issue before the FCC, Ergen said AWS-3 auction spectrum is lying fallow until the litigation is resolved (see 1807130003) and he's hopeful Dish, the agency and the DEs "can get everything moving."

Asked about why Dish went for Sprint’s 800 MHz spectrum instead of its 2.5 GHz assets, Ergen said it negotiated with T-Mobile and Sprint a deal that, once it got to DOJ, ended up being materially better. Asked about the possibility of selling spectrum to finance the deal, “We’d prefer not,” Ergen said, adding that the DOJ agreement puts restrictions on some spectrum changing hands.

For Q2 2019, Dish had revenue of $3.21 billion, down $250 million year over year, it said Monday. It said it ended the quarter with 12 million subscribers, including 9.56 million direct broadcast satellite subscribers and 2.47 million Sling TV subscribers. The same quarter a year ago, it had 10.65 million subscribers. Net income was $317 million, down from $439 million last year.

Sprint said Monday it will release its most recent quarterly results at 8 a.m. EDT Friday. Management won't host a conference call.