10.24.12

Things to do in Denver when your deal’s dead…

Posted in DISH, Financials, Operators, Regulatory, Spectrum at 11:41 am by timfarrar

Is Charlie Ergen giving up on his wireless plans? An interview with Bloomberg published this morning seemed to signal a change of stance, particularly the explicit suggestion that Ergen would be open to simply selling his spectrum to AT&T, when his (coded) message for the last year has been that AT&T would need to buy the whole of DISH (at a huge premium).

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.

Despite this, perhaps Ergen could still do a deal with other partners like Carlos Slim or DirecTV, but it is harder to see the rationale for investing in building a fifth competitive operator than it was a month ago, when Sprint (and perhaps even T-Mobile) were perceived to be in a much weaker competitive (and financial) position. In addition, we may be seeing AT&T attempt to warn off Carlos Slim from a deal with Ergen, in the form of mutterings about foreign ownership of other wireless operators.

So it looks like Ergen may now turn his attention towards a potential merger deal with DirecTV. In the short term that means putting pressure on DirecTV to come to the table, most obviously by competing with them in Brazil. Indeed, Echostar told the FCC at the end of September that it planned to move the Quetzsat satellite to the 61.5W slot, freeing up AMC-15 to be relocated to 45W in order to provide service into Brazil “as soon as January 2013“.

Wireless and broadband could also be a key part of this deal, via an alignment of both satellite TV operators with AT&T, similar to the Verizon-cable TV partnership, and that would be cemented by the sale of DISH’s spectrum to AT&T. Nevertheless, I would expect the sale to come ahead of an agreement with DirecTV, simply because being left out of a DISH-AT&T alliance would put even more pressure on DirecTV. As I noted last December, this alignment would cement AT&T and Verizon’s market leadership. However, given that the FCC backed off mandating wholesale access as a condition of approving the Verizon/SpectrumCo deal, the only plausible way to promote competition to these two players may then be to allow Sprint and T-Mobile to merge.

Of course putting a price on DISH’s spectrum is hard, but I suspect that the most appropriate comparison for the AWS-4 spectrum is the WCS band which AT&T purchased recently, because neither band is usable immediately (unlike AWS). AT&T paid NextWave more than expected for WCS, but this was offset by the fact that AT&T already owned a substantial part of the band, for which it had paid very little. I would therefore expect an AWS-4 sale to be at a fairly similar price to that AT&T paid NextWave for the usable parts of the WCS spectrum: somewhere in the range of ~$0.30-$0.40/MHzPOP (depending on how much value is attributed to the C/D blocks and AWS holdings), i.e. of order $3.75B-$5.0B plus perhaps another $1B for DISH’s 700MHz E block spectrum.

5 Comments »

  1. sboZ said,

    November 13, 2012 at 8:59 pm

    Tim,

    Didn’t Ergen know that he probably would not get a decision from the FCC regarding DISH’s spectrum before the election?

    What do you think will happen to DISH’s spectrum now that the election is over? What will happen to 1995-2000 MHz?

    Thanks

  2. clytle33 said,

    November 14, 2012 at 11:50 am

    Tim,

    Not sure why WCS spectrum is the right comp here assuming T was only buyer for this spectrum since they already owned a substantial part of the band. I would think S-band spectrum would be interesting to at least 3 of the 4 major existing players and potentially other outside players down the road. Also, it appears FCC has rejected Sprint proposal to shift DISH spectrum up and is trying to propose interference limits to protect H-band spectrum. What type of interference limits would jeopardize DISH plans to launch own wireless service or ability to flip spectrum to existing player?

    thanks

  3. timfarrar said,

    November 14, 2012 at 6:36 pm

    My guess is that Ergen hoped he could get an earlier decision, in time to pre-empt the Sprint/Softbank deal. After all it appears Sprint was beating the bushes to find a deep pocketed backer and talked to others like Carlos Slim. Perhaps that was optimistic, but there was always only a narrow window of opportunity for a new entrant and its going to be harder to pull it off now than it was 2 months ago, before the TMO and Sprint deals.

    The WCS comp isn’t direct – obviously AT&T could afford to pay more because it was only buying 50% of the spectrum and the rest was near free. On the other hand, the price is going to be rather less than the SpectrumCo AWS benchmark, given the existing ecosystem there and the lack of it in 2GHz. Also, the $0.30-$0.40/MHzPOP benchmark is one that’s been used in other contemplated transactions for bands with no current ecosystem (at least that was the rumor when LightSquared was looking to monetize its 1670-75MHz spectrum earlier this year). $5B is less than Ergen would be looking for in a sale of the whole company, but if DISH gets leverage over DirecTV as well (think replacing DTV with DISH as AT&T’s satellite TV partner) to engineer an attractve satellite TV merger price next year then it could still be a decent outcome.

    On the proposed interference limits, its quite likely that the lower 5MHz of DISH’s uplink spectrum will be largely unusable if the H-block is going to be viable for high power operations (and worth $1B in an auction). In essence DISH is being moved without actually moving, possibly because of DoD concerns above 2025MHz (rather than the BAS issues DISH focused on in its submission, which are likely overblown). That may not make too much difference to the desirability of the spectrum to AT&T, but its another factor that potentially makes a standalone deployment more risky.

  4. TMF Associates MSS blog » No alphabet soup for you? said,

    November 17, 2012 at 11:53 am

    [...] left to build out a new network of its own, as opposed to selling the spectrum to AT&T and pursuing a merger with DirecTV? There still appears to be uncertainty about the status of a potential deal with Clearwire, though [...]

  5. TMF Associates MSS blog » Playing three dimensional chess… said,

    December 17, 2012 at 9:11 am

    [...] If so, the price may not be as attractive as many hope: if there are few other options then my earlier estimate of $0.30 to $0.40 per MHzPOP sounds closer to the mark than the inflated $1 per MHzPOP speculation we saw last week. Those [...]

Leave a Comment

You must be logged in to post a comment.