After all the back and forth in court this week, with testimony from Charlie Ergen and Phil Falcone about Ergen’s purchases of LightSquared debt, the casual reader could be forgiven for thinking that this is still a battle between the two of them for control of LightSquared. However, a court filing from LBAC today emphasized that DISH is withdrawing its bid and if their argument (that DISH’s bid is not locked-up) stands, it appears that the Ad Hoc Committee will have an uphill task in moving to confirm a plan based on sale of the assets.
Instead, if LightSquared can get sufficient commitments tomorrow so that the $2.5B of new debt needed to back its reorganization plan is in place (contingent of course on FCC approval), then both Ergen and DISH appear happy to step back and wait to see what happens. If the FCC did give LightSquared the approvals it wants, which Falcone has “a pretty good feeling about” (mirroring his confidence back in 2011 that GPS interference issues could easily be solved), then Ergen would get repaid with interest (assuming he wins the current trial), and if the FCC refused (or declined to rule), then he could come back with another (lower) bid later on.
What’s far more intriguing is why DISH now seems to regard LightSquared as dispensable, at least for the time being. Remember that Ergen testified DISH only became interested in LightSquared as a backup plan once it became clear DISH would not succeed in buying Sprint or Clearwire. In addition, rebanding the AWS-4 uplinks to downlinks and pairing with LightSquared’s uplinks would delay any network deployment by at least a couple of years.
So it seems highly likely that Ergen has another plan in mind, which DISH will move to implement soon after the H-block auction is complete. There are repeated rumors about a Sprint bid for T-Mobile and an expectation that DISH would mount a counterbid. But it still seems that Sprint would have a tough job getting regulatory approval.
BTIG seem to think that a asset sale by Sprint to DISH would be one solution (what assets this would be is unclear, but we suspect DISH’s main objective would be to get hold of Clearwire spectrum, not a retail wireless business, and Sprint doesn’t need to buy T-Mobile for its spectrum). But isn’t a direct Sprint/DISH partnership a simpler solution, with a Sprint bid for T-Mobile acting as a backstop option if a deal with DISH falls through?
Its surprising how few people really seem to have grasped what DISH’s key asset is, namely that its 14M potential towers (i.e. rooftop satellite dishes) are at least as valuable as its spectrum (and perhaps more so, since using the AWS-4 spectrum for a fixed wireless broadband network wouldn’t be a very high value use).
Consider for example, a wireless broadband network deployed to 20% of DISH’s current customer base (2.8M households), let along the 8.5M targeted in DISH’s April 2013 Sprint bid proposal. If DISH can rent even a fraction of this tower space for $100 per month (compared to the $1700 or so that is charged by traditional tower companies) to Sprint to host its 2.5GHz small cell buildout, then that could generate at least $1B per year of incremental cashflow, with little or no offsetting costs (remember the power and space is provided by the homeowner). Moreover, DISH’s best use of its money would then be to try and buy DirecTV, offering a national broadband fixed wireless competitor and ensuring that AT&T couldn’t gain a similar buildout opportunity via DirecTV’s satellite dishes.
We’ll see what happens in the H-block auction next week, but even that may not be particularly critical to DISH’s near term plans, and I’d expect DISH could be quite content to be outbid on many licenses by non-strategic investors. Then regardless of what happens to LightSquared in the next few weeks (and things may go at least somewhat quiet for much of this year while the company makes yet another effort to secure FCC approval), my bet is that we’ll be hearing a lot more about Ergen’s wireless plans in the next few months.