Dish's spectrum undervalued by 45%, according to Jefferies

Dish Network satellite dishes on rooftop
Dish must build out 70% of its covered POPs by March 2020.

Dish Networks’ spectrum portfolio is undervalued by roughly 45%, Jefferies analysts said this morning, providing “the most compelling investment opportunity” in the telecom and cable/satellite markets. And AT&T could make an "ideal partner" as Dish looks to bring that spectrum to market.

The satellite TV provider has quietly cobbled together a significant amount of spectrum via auctions and secondary-market transactions, and it has amassed a particularly sizable chunk of mid-band airwaves, according to Allnet Insights & Analytics. Dish earlier this year outlined plans to build an NB-IoT network using its spectrum to provide connectivity to a wide range of devices other than traditional tablets and smartphones.

Analysts continue to question whether Dish truly wants to go it alone in wireless, though, instead of either partnering with an existing service provider or selling or leasing its spectrum. The company continues to post subscriber losses in a brutal pay-TV market, however, leading most industry insiders to believe it won’t simply cash in on its spectrum.

And those airwaves have become increasingly attractive following a slew of spectrum deals over the last few years.

“We believe Dish’s spectrum assets should continue to draw attention from top-wireless carriers due not only to the mid-band capacity advantages, but also the availability and speed to market,” Mike McCormack of Jefferies wrote in a research note sent to investors this morning. “Importantly, Dish’s spectrum represents some of the deepest spectrum available for immediate deployment, as we expect the repurposing of the broadcaster spectrum (from the incentive auction) to be a lengthy process. Aside from Dish, there are few other spectrum assets potentially available on the secondary market, including: various 700 MHz/PCS/AWS in Tier 2 markets, and 34 MHz of Light Squared’s uplink L-Band. With respect to the lower-band spectrum, while it is excellent for in-building penetration, and broad coverage, it does not provide the significant capacity of mid-band, which is particularly in demand given the move to unlimited and video streaming… Dish’s ability for asymmetric downstream capacity furthers the value of the Dish portfolio.”

Dish must build out 70% of its covered POPs by March 2020 to meet the FCC’s requirements, which gives the company “considerable time and options” as it plots its strategy. Dish could likely meet that deadline by building a narrowband IoT network from the ground up “at a relatively low cost,” McCormack noted, or it could employ the “nuclear option” of auctioning off some spectrum to bidders that agree to the deployment mandate.

And Dish could “enter a sweetheart deal” with an incumbent operator to meet its buildout requirement, McCormack wrote. While that may be “a worst-case scenario,” it also could pave the way to a partnership with AT&T as Dish finally moves into a wireless market it has long coveted.

“Dish CEO Charlie Ergen has consistently indicated that an ideal build would leverage a partner that was also constructing a network in order to benefit from deployment synergies,” according to Jefferies. “With AT&T planning to touch all of its towers in the coming 18 to 24 months as part of its FirstNet contract, we believe they would make an ideal partner; Dish management also noted that any build would need to begin by late 2018.”