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How much is Dish Network worth?

by Chris Nolter  |  Published November 16, 2012 at 3:14 PM
While the election season has passed, the political calculus continues for Charlie Ergen's Dish Network Corp.

For Dish, the key decision in Washington will come from the Federal Communications Commission, and will affect larger strategic moves the company contemplates.

Ergen's pay-TV company awaits an order on whether it can deploy terrestrial wireless broadband on spectrum that has been marked for satellite service.

Dish purchased the spectrum from the bankruptcy estates of DBSD North America Inc. and TerreStar Networks Inc. for a collective $2.9 billion earlier this year.

"The commission is probably weeks away from approving the Dish spectrum repurposing order," said Andrew Lipman of Bingham McCutchen LLP. The lawyer suggested that the order might be done by circulation among commissioners, rather than at one of the FCC's monthly meetings.

The company will face significant network construction requirements, Lipman said. Restrictions on emission restrictions at the lower end of the Dish spectrum around 2000 megahertz are also likely, he said, to limit interference in the nearby 1995 to 2000 MHz frequencies, which the government hopes to auction next year.

It's not just an operating or network engineering question. There is also a valuation question, with implications for deals that Dish could strike with such disparate companies as telecom giant AT&T Inc., satellite rival DirecTV Group Inc. or even Web search giant Google Inc.

"Getting the order would help a potential buyer actually put some real hard numbers around how to value the spectrum. It's tough for any buyer to make a bid for Dish without knowing exactly how it is going to shake out," said Amy Yong of Macquarie Capital (USA) Inc.

The value of Dish's spectrum could swing from the $3 billion that Ergen paid, Yong suggested, to as much as $10 billion, based on metrics of some licenses.

A pact between Verizon Wireless and large cable operators including Comcast Corp. and Time Warner Cable Inc. has heightened the urgency for competitors to augment their wireless, broadband and pay-TV offerings. Verizon Wireless is buying spectrum from the cable operators, but also struck agreements to resell services.

"You have to think about who you should be partnering with over the next few years if you need broadband, video or wireless," Yong said.

Ergen laid out his thoughts on the topic in November, when he outlined reasons for Dish-DirecTV combination. A deal would help two mature video business with scant broadband holdings compete in a world of online video.

Of course, such a deal comes with a political baggage. The government rejected a proposed merger between the pair a decade ago.

Whether that baggage became more cumbersome with President Obama's re-election is debatable.

"One could argue that it could have been modestly easier to get such a deal done during the Romney administration," Lipman said. "However, the analysis that both the FCC and Justice would use would be similar irrespective of which party was in power."

It was, after all, the Bush administration that shot down a previous merger proposal. "It was the only telecom/media merger of any size that the Bush administration rejected," Lipman added.

Craig Moffett of Sanford C. Bernstein & Co. suggested that Dish and DirecTV would push a merger as a pro-consumer deal, and propose using Ergen's spectrum to introduce a new competitor in the wireless broadband market.

"We think the 'economic benefits' of a Dish-DirecTV merger are so overwhelmingly attractive that it would be surprising only if the two companies weren't considering a deal," Moffett wrote in a Thursday report.

DirecTV's market capitalization is about $30 billion, and Dish's equity is worth about $5 billion. Moffett suggested that at the companies' current multiple of 5 times Ebitda, the combined market valuations of a merged company would see a $17.5 billion bump. The argument could be made that the merged companies should trade at a higher multiple.

The market is different than it was a decade ago, when a combination of satellite TV operators was deemed anticompetitive. Over-the-top video providers such as Netflix Inc. and Hulu have flourished. Verizon Communications Inc. and AT&T have built fiber in some markets to offer pay-TV.

The market continues to evolve, as Softbank Corp.'s pending purchase of a 70% stake in Sprint Nextel Corp. and the merger of Deutsche Telekom AG's T-Mobile USA Inc. with MetroPCS Communications Inc. reflect.

Ergen committed to buy the DBSD and TerreStar spectrum in March and June of 2011, respectively. The satellite tycoon has been waiting a long time to know just what he can do with the licenses, and how much they might be worth.

The answer will provide key data for the enormously complex and evolving wireless market.

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Tags: AT&T Inc. | bankruptcy | Charlie Ergen | Comcast Corp. | DBSD North America Inc. | DirecTV | DirecTV Group Inc. | Dish Network Corp. | Ebitda | FCC | Federal Communications Commission | Google Inc. | President Obama | spectrum | TerreStar | TerreStar Networks Inc. | valuation | Verizon Communications Inc. | Verizon Wireless

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Chris Nolter

Senior Writer: Media & Telecom



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