Verizon top candidate for Dish's spectrum, but timing uncertain

Dish satellite dishes
Verizon has emerged as the most likely company to make a play for Dish Network's spectrum

Verizon has emerged as the most likely candidate to make a deal for Dish Network’s substantial spectrum assets, according to multiple analysts. But that doesn’t mean it will happen any time soon.

Shares of Dish inched upward this morning after the company unexpectedly posted subscriber net adds during the fourth quarter, but analysts remain concerned about the company’s long-term prospects in the pay-TV business. The company’s real value lies in its spectrum, analysts generally agree, but it is hamstrung by the FCC’s anti-collusion rules during the ongoing incentive auction of 600 MHz spectrum.

Like Verizon, AT&T and T-Mobile, Dish is a bidder in the auction.

“While (Dish’s quarterly) results were generally positive, spectrum value remains the key driver of performance,” Mike McCormack of Jefferies wrote this morning in a research note. “In that regard, no news is expected pending the conclusion of the broadcaster auction, likely in early April.”

A potential Dish tie-up with one carrier or another has long been rumored—T-Mobile seemed the most likely candidate two years ago—and a cable company such as Comcast or Charter could use Dish’s spectrum as they try to elbow their way into the wireless market. But very few companies have the deep pockets that will be necessary to access Dish’s mid-band spectrum, which has become more valuable as carriers have begun to prioritize increasing capacity rather than expanding coverage.

“Whatever Verizon’s other options, we think Dish is their best path to getting the capacity they need fast, everywhere that they need it,” New Street Research analysts wrote. “Verizon’s launch of unlimited last week will only hasten their need for additional capacity. Stronger subscriber and free cash flow trends at the DBS (direct-broadcast satellite) business will help ensure that Dish has the time and resources to wait for the right deal for their spectrum.”

And while Dish is on the clock due to the FCC’s build-out mandates, the company may have more time than it appears there as well. Dish has until March 2020 to build a network using its spectrum to cover 70 percent of the country, and some believe the FCC may extend that date. One major question, according to MoffettNathanson analysts, is whether Dish’s financial status forces its hand before the FCC’s mandate does.

“All this analysis of the core business may seem beside the point for investors hoping for a quick flip of Dish Network’s spectrum to Verizon or… well, or Verizon. But it is important to be aware that, as weak as these metrics are on the surface, underneath they are even worse,” MoffettNathanson wrote. “Dish will need to do a deal for its spectrum not only before the FCC build-out requirements back Dish against a wall, but also before the deterioration in its own core business becomes untenable given their already-high debt load.”