Good luck Charlie!

Posted in Financials, ICO/DBSD, Operators, Regulatory, Spectrum, TerreStar at 5:25 am by timfarrar

Surprisingly little attention is being given to Charlie Ergen’s upcoming PCIA keynote speech on October 3, where he is set to “discuss DISH’s wireless plans” and will be followed by a Q&A session with FCC Chairman Genachowski. This may be due to the fact that many analysts believe DISH are unlikely to build out a wireless network and will instead seek to sell their spectrum to AT&T. Support for this view comes from the narrowing field of potential partners for DISH, with DirecTV indicating last week that “it’s hard for us to see why we would want to go and compete in [the wireless] space”. DISH have also been pushing back at the FCC on the proposed shift of their uplinks by 5MHz into the 2005-25MHz band, claiming that a 5MHz buffer is needed between their spectrum and BAS operations above 2025MHz, and that a shift would cause serious delays for their network buildout plans. However, our BAS industry contacts indicate that any interference issues would be largely manageable, and so many believe DISH may struggle to win this battle on interference arguments alone.

However, I think that in fact the chances of any spectrum sale to AT&T in the near future are rather low, unless DISH can put forward a wireless business plan that scares AT&T into making a knockout bid for the company. Indeed it is in AT&T’s interests to sit on the sidelines if they expect DISH to struggle with network buildout and customer acquisition, because then the potential price for taking the assets off DISH’s hands would most likely go down, and AT&T does not need (and could not use) the 2GHz spectrum band for several years.

As a result, whether or not a deal with AT&T remains a possibility, DISH now need to come up with a concrete plan for their network buildout as well as partnerships that AT&T would consider a real threat. Some of these pieces now appear to be coming together, and the first details may even emerge as soon as next week’s speech. With regard to a network buildout plan, it is interesting to note that DISH have apparently been building a significant stake in Clearwire’s first lien debt, which totaled almost $400M at the end of June and may now be considerably higher. Clearwire have also been highlighting the potential for “asset sales” to raise the money required to complete their planned LTE buildout.

A deal which could meet the needs of both DISH and Clearwire would be for Clearwire to sell its existing WiMAX network and retail customer base to DISH for something like $1B to $2B in cash (and Clearwire debt?) and then enter into a network sharing agreement for Clearwire and DISH’s separate LTE buildouts. This would allow DISH to acquire a network covering 130M+ people (and perhaps more when moved to the 2GHz band) at a very substantial discount to the $4B that Clearwire have invested in their network to date, and enable DISH to offer fixed wireless broadband to their existing satellite TV subscriber base. Indeed, by adding an outdoor 2.5GHz terminal alongside their satellite TV antennas, DISH could extend the range of the 2.5GHz WiMAX network to cover considerably more people compared to existing indoor modems. DISH would also presumably develop a dual mode 2.5GHz WiMAX/2GHz LTE (and perhaps 2.5GHz LTE) handset to provide an evolution path for Clearwire’s handheld customer base. Meanwhile, Clearwire could substantially reduce their network costs and gain additional income from leasing 2.5GHz spectrum to DISH for the next several years.

The second part of the puzzle is who DISH’s partner(s) for their wireless operation might be. Obviously AT&T and Verizon could not be partners, and after their AWS spectrum deal with Verizon, T-Mobile are almost certainly out of contention. Sprint have been looking for a hosting customer similar to LightSquared to help defray the cost of Network Vision, but if DISH enter into a network deal with Clearwire then that would likely rule out a partnership with Sprint (though Sprint’s wholesale WiMAX customers would continue using the Clearwire/DISH network for the time being). With DirecTV also now on the sidelines, it looks like DISH’s partner would have to come out of left field, and the only obvious option there would be Carlos Slim (and presumably America Movil). Its worth noting that Slim already appears to be interested in MSS spectrum, given he is probably the only remaining credible possibility for the mystery LightSquared investor that many thought was Ergen earlier this year, and he has an existing relationship with Ergen in Mexico, so a deal here would not be that much of a surprise.

The biggest unknown is how much of this unfolding story will emerge next week at PCIA. With the FCC not expected to approve DISH’s request for terrestrial use of the AWS-4 spectrum until later in October, it may be risky to reveal too much right now. If an announcement does come next week, then it will also come as a major shock to most wireless industry observers, because almost no attention is being given to the possibility of a tie-up between DISH and Clearwire. However, this may be the last chance for DISH to pressure the FCC not to shift their uplink spectrum, and a major announcement of network plans could tip the scales in their favor. As a result, I suspect that Ergen’s speech could well contain an announcement of a network deal, a partnership or perhaps even both.


  1. TMF Associates MSS blog » Good luck Charlie! | MisterDTV said,

    September 25, 2012 at 9:49 am

    [...] TMF Associates MSS blog » Good luck Charlie!. Share this:TwitterFacebookLinkedInEmailPrintLike this:LikeBe the first to like this. This entry [...]

  2. DPSL said,

    September 25, 2012 at 11:28 am

    The one major issue I see with your speculation(s) concerns Clearwire selling the existing WiMax network. I don’t believe that will happen as the new LTE network which Clearwire has a contractual obligation to Sprint to complete in major metro areas, uses the existing WiMax network with only small changes…read software and some radios. The existing WiMax network is THE skeletal framework required for the Clearwire LTE network. It seems much more reasonable DISH would have Clearwire host the spectrum DISH currently holds and offers a business agreement which gives them both access to the rooftops of DISH’s existing customers via the satellite receivers, allowing a quick and economical pico station rollout for the LTE network.

  3. timfarrar said,

    September 25, 2012 at 3:39 pm

    While Clearwire want to build out the LTE network (and I still expect that, based on some sort of cost sharing with DISH), they are initially doing that upgrade on only 5000 sites. Even assuming some further expansion later on, Clearwire still need to shed ~10,000 WiMAX sites that will never be used for LTE hotspots. The relationship for existing equipment at the core 5000 sites (where those sites can easily be upgraded) may be more complicated, but a sale of at least the excess sites is much simpler and raises more cash for Clearwire.

    And you can ignore the satellite links, the idea of using satellite backhaul in this network is nonsense.

  4. Dish and Sprint Battle over PCS band Extension said,

    September 26, 2012 at 9:34 pm

    [...] DISH objects to the proposed shift of their uplinks by 5MHz into the 2005-25MHz band, claiming that a 5MHz buffer is needed between their spectrum and the high end of the band, above 2025MHz, and that a shift would cause serious delays for their network buildout plans. [...]

  5. TMF Associates MSS blog » This speech, like youth, wasted on the young… said,

    October 5, 2012 at 2:34 pm

    [...] merger, this makes me wonder just how many attractive alternatives Charlie Ergen still has to a deal with Clearwire for buildout of his 2GHz [...]

  6. TMF Associates MSS blog » Out of the box? said,

    October 16, 2012 at 8:44 am

    [...] actions appear to confirm that Clearwire was about to pull the trigger on a deal with Ergen, as I suggested last month, involving an asset sale and/or WiMAX customer transfer, in exchange for a combination of cash and [...]

  7. TMF Associates MSS blog » Things to do in Denver when your deal’s dead… said,

    October 24, 2012 at 12:17 pm

    [...] Not only has the Softbank deal enabled Sprint to escape from the box DISH had been trying to put it in, but by buying McCaw’s stake in Clearwire, and indicating to other strategic investors on the board that further equity purchases are up for negotiation, Sprint looks to have headed off Ergen’s planned deal to purchase assets from Clearwire. [...]

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