Acquiring EchoStar Should Sharpen Dish's Focus on Enterprises, but Very High Uncertainty Remains

Director

Michael Hodel

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Pay-TV

Wireless

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Dish Network’s massive bet on wireless spectrum overshadows its declining cash-cow satellite television business. The firm has spent about $30 billion (about $55 per share) to acquire a variety of spectrum licenses over the past 15 years. Dish is building a wireless network it believes will be technologically superior to existing carriers. Dish appears to be pivoting more toward the enterprise and wholesale telecom markets with the EchoStar merger, a move we believe makes sense given the mature and competitive traditional smartphone wireless market. Still, the firm faces a highly uncertain future as it seeks to carve out a niche. 

Dish’s satellite television business peaked in 2013 at 14 million customers and has declined every quarter since to about 7 million today. The firm’s network of owned and leased satellites is extremely efficient at delivering traditional television service, but consumer tastes have rapidly changed in favor of on-demand content delivered over the internet, where satellite service is generally not well suited. To its credit, Dish recognized the shifting television landscape early, sharply cutting investment in customer acquisition and focusing its efforts on more rural areas where competitive alternatives are less available. We expect the television business will continue to generate cash flow but at a declining rate.

Wireless spectrum is Dish’s strategy to build a prosperous future, but we are skeptical of this effort. In addition to its spectrum holdings, the firm acquired the Boost prepaid business from Sprint, giving it less than 3% market share. To attract customers, Dish will likely have to compete heavily on price, but it will likely remain at a severe cost disadvantage versus its far larger rivals. 

Using its fallow network along with the satellite assets EchoStar brings to create unique services for business customers provides Dish with the best shot of earning acceptable returns on capital. The direction that the business services market takes over the next few years is difficult to predict, however. Revenue across this industry is in decline and firms like AT&T and Verizon have strong networks and deep financial resources.

Business Strategy & Outlook

We don’t believe Dish holds an economic moat, reflecting our view of the firm’s heavy investment in wireless spectrum licenses over the past 15 years. This investment has swamped the value of Dish’s core satellite television business, as wireless licenses now account for the majority of its invested capital base. Dish has only minimally put these licenses to use, so they generate no return for the firm. While Dish would argue that spectrum values will increase over time, we believe it is in a precarious position. We are skeptical that it can build a business competing against three wireless giants that hold far greater resources that generate acceptable returns on investment. 

Dish’s earliest forays into the spectrum market were quite savvy, in our view. The firm picked up inexpensive low-band spectrum at auction in 2008 and acquired two bankrupt spectrum owners in 2011 (AWS-4). In the latter case, Dish worked relentlessly with regulators and technology firms to expand the value of these licenses, producing a large block of fallow spectrum and clearly adding value for shareholders. Dish then picked up another unloved chunk of spectrum in 2014 at a very attractive price. At this point, the firm likely could have used these assets to extract generous terms from one or more existing wireless carriers. 

Instead, the firm decided to push hard to acquire additional spectrum, bidding aggressively in the 2015 AWS-3 auction, spending nearly $10 billion. We believe this purchase was a mistake, adding spectrum at a very high price. Dish followed this purchase with the $6.2 billion acquisition of low-frequency licenses in the 2017 broadcast auction, a more reasonable purchase. But it again ran up the price of spectrum in 2022, spending $7.3 billion in the 3.45 GHz auction. Bidding against entrenched competitors that can quickly put spectrum to use is a poor strategy, in our view.

Dish now holds a well-diversified portfolio of spectrum assets that would nicely support the offering of wireless service, but it has a very limited network to utilize that spectrum. The breadth of its holdings likely makes its portfolio unattractive to an existing carrier on the whole, but Dish seems uninterested in selling off any of its holdings piecemeal. In any event, the existing carriers have moved forward with network plans built around their own holdings while turning their attention to new spectrum bands

Dish’s narrow strategic options have been further complicated by the buildout requirements surrounding its longest-held licenses. Dish is in the midst of building a wireless network. While Dish has utilized recent technological advancements that should make it more efficient, the wireless business fundamentally requires scale for success. Putting aside the upfront buildout costs, operating a network of sites entails a variety of fixed costs, including tower rents, utilities, and traffic backhaul. 

Dish’s best option, in our view, is to partner with a cable company looking to enter the wireless business, but these firms have operated as fierce Dish rivals over the past 20 years. In addition, Dish has restricted its ability to sell some of its assets or lease capacity to most U.S. cable companies as part of its agreement with T-Mobile. 

The core satellite television business is efficient at delivering traditional television service. Even with the decline in this business over the past few years, we estimate it generates double-digit returns on invested capital, including the capitalization of customer acquisition costs. However, the television business has shifted dramatically over the past several years, as consumer expectations and tastes have changed. Increasing interest in streaming content places fixed-line networks in a much better position relative to satellite, as these firms can provide much larger video-on-demand libraries or simply provide internet access to those customers who only want content from online services like Netflix.

None

Economic Moat

DISH Network

Sling TV is an American over-the-top internet television service owned by Dish Network. Unveiled on January 5, 2015, at the Consumer Electronics Show, the service – which is structured as a virtual multichannel video programming distributor – aims to complement subscription video on demand services for cord cutters, offering a selection of major cable channels and OTT-originated services that can be streamed through smart TVs, digital media players and apps.

Sling TV

Sling Media is a technology company that develops placeshifting and Smart TV solutions for consumers, multiple-system operators and set top box manufacturers. The company is based in Foster City, California, and was a subsidiary of EchoStar Corporation (acquired in the fall of 2007). Their initial product, the Slingbox, debuted on the US market on July 1, 2005. The EchoStar business unit was part of a corporate assets exchange with Dish Network at the beginning of 2017 and now operates as Dish Technologies Corporation under Dish Network.

Sling Media

Blockbuster was an American-based provider of home movie and video game rental services through video rental shops, DVD-by-mail, streaming, video on demand, and cinema theater. Blockbuster became internationally known throughout the 1990s. At its peak in 2004, Blockbuster employed 84,300 people worldwide, including about 58,500 in the United States and about 25,800 in other countries, and had 9,094 stores in total, with more than 4,500 of these in the US.

Blockbuster

DISH Network Corporation (or simply DISH) is an American-based direct-broadcast satellite service provider. The company provides satellite television, audio programming, and interactive television services to commercial and residential customers in the United States. As of November 2016, the company provided services to 13.7 million television and 580 thousand broadband subscribers. The company has approximately 16,000 employees. The company is headquartered in Meridian, Colorado, though the postal designation of nearby Englewood, Colorado is used in the corporate mailing.

DISH Network Corporation

DISH Network Corp. is a holding company, which engages in the provision of pay-tv services. It operates through the Pay-TV and Wireless segments. The Pay-TV segment operates under the DISH brand and Sling brand. The Wireless segment refers to the wireless spectrum licenses and related assets. The company was founded by Charles William Ergen, Cantey M. Ergen and James DeFranco in 1980 and is headquartered in Englewood, CO.

Earnings data Q4 2023

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