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Dish debt sale sparks new speculation

by Chris Nolter | Published May 9, 2012 at 4:58 PM

The recent sale of $1.9 billion in senior unsecured notes by Dish Network Corp. adds new intrigue to the running dialogue about Charlie Ergen's ambitions in the wireless industry.

Ergen has amassed a trove of wireless spectrum licenses through bankruptcy deals and other means. As he seeks Federal Communications Commission approval to expand the use of the licenses, he has publicly maintained that he just might build a new wireless network. Now, the shifting fortunes of LightSquared Inc. raise questions about whether Dish could pursue the company.

Dish said Tuesday, May 8, that a subsidiary priced $900 million aggregate of five-year senior notes with 4.625% interest and $1 billion in 10-year, 5.875% senior notes that would be used for general corporate purposes. Moody's Investors Service noted that the proceeds could fund payments of maturing debt. "However, there is also the possibility of up-streaming of some cash to the parent holding company for the purpose of funding a yet-to-be-defined wireless broadband strategy," the ratings agency cautioned.

The satellite TV entrepreneur addressed his intentions during an investor call earlier this week.

Asked directly if he would spend $10 billion or so to construct a network, Ergen suggested that the amount was not necessarily prohibitive. "I'm happy to spend $10 billion if we can get a 50% return on it every year, right?" he said. "I wouldn't be happy to spend $10 billion if we get a 3% return on it every year."

Ergen noted that the most likely outcome is to find a partner that is already in the wireless business. He suggested that the $4 billion Dish has invested in wireless licenses generated more value than if the funds had been spent to attract more satellite TV subscribers. For shareholders, the best outcome would likely be a flip.

Ergen did not directly say during the call whether he has an interest in LightSquared, replacing Carl Icahn as a shadow suitor of Philip Falcone's embattled wireless broadband startup. A report in the New York Post stated that Ergen has purchased LightSquared debt. A Dish representative did not respond to a query.

Dish paid nearly $3 billion for 40 megahertz of spectrum in the 2 gigahertz band owned by bankrupt companies DBSD North America Inc. and TerreStar Networks Inc. The FCC requires that services provided over the wavelengths involve a satellite component, though Ergen is seeking permission to use them for conventional service. Dish also has 6 MHz of spectrum in the 700 MHz band, which it purchased from the government for $712 million in 2009.

That's a lot of spectrum for someone who doesn't have a network.

Falcone's company, of course, stumbled when the FCC declined to grant a waiver allowing it to use its spectrum for conventional wireless service because of concerns about interference with global positioning systems. It is in a state of legal-regulatory limbo.

What would LightSquared do for Ergen?

"The only thing you can use LightSquared's spectrum for is satellite telephony," said Roger Entner of Dedham, Mass., wireless consultancy Recon Analytics LLC.

If Ergen used DBSD and TerreStar's 2 GHz spectrum to carry mobile broadband and devoted LightSquared's network to more limited purposes, Entner said, "then that makes sense."

It's difficult to know the boundaries, given Ergen's willingness to publicly discuss the possibility of a $10 billion network construction project. Of course, such talk could be a bluff to pressure spectrum buyers.

Meanwhile, for LightSquared, the shifting cast of characters makes the situation more fluid and difficult to gauge. "It's like a kaleidoscope," observed Andrew Lipman of Bingham McCutchen LLP.

Given the blurred optics on Ergen's wireless goals and LightSquared's debt and regulatory woes, a kaleidoscope might actually be an improvement.

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Tags: Charlie Ergen | Dish Network Corp. | LightSquared Inc.

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Dish debt sale sparks new speculation

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