Noting Dish Network’s progress in selecting its first vendor for its greenfield wireless network, analysts at New Street Research say nothing about the COVID-19 crisis really changes the company’s ability to build a network.
Last week, Dish named the first vendor for its planned virtualized 5G network build, selecting Mavenir to supply OpenRAN software. The announcement signaled Dish’s intent to move forward with its national standalone 5G network as part of the government’s remedy in the T-Mobile/Sprint merger. Dish also is set to take over the Boost Mobile prepaid business, a transaction that the analysts suspect may close before May 1.
New Street says the announcement of Mavenir supports three things they’ve heard from Dish in the past: that it will build a virtualized network; that it will likely rely on less established vendors; and that "for those that still doubt it, that they will actually build a network.”
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Dish has estimated it will cost $10 billion to build a network, which will be less than traditional builds because it will be virtualized from the get-go and rely more heavily on software, which is the direction many of the existing networks are going. With COVID-19, however, some have questioned how it's going to see it through.
Dish’s stock price, which was around $24.13 today, has been pummeled since the onset of the crisis. The company has enough cash to pay for Boost and pay off $1.1 billion in debt maturing in May, but without access to the capital markets, the $2 billion maturing in June 2021 could pose more of a challenge. In addition, the $2 billion maturing in 2022 could pose more of a challenge still, New Street's Jonathan Chaplin wrote in an April 26 note for investors.
Dish then needs $9 billion in additional capital to fund capex and operating losses for its wireless network. Investors worry that this will be much harder to raise in the current environment. If Dish can’t raise capital to build the network, it will fall short of its deployment obligations in 2023 and risk losing its most valuable spectrum licenses, Chaplin noted.
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However, “we never thought Dish would be able to fund the full $9BN required to fund the wireless network on the back of the DBS business and spectrum licenses alone. We always assumed the capital would come, either from a strategic partner or, more likely, from the capital markets with knowledge of a commitment from a strategic partner,” wrote Chaplin. “Nothing has changed since the onset of the crisis. None of the strategic partners that we have speculated about have any less interest in a new, low-cost access network, and none have diminished access to capital or a diminished ability to make a commitment to purchase capacity in the future. Really, nothing has changed.”
If Dish raised even $1 billion or $2 billion, “we believe it would be an important catalyst for the equity because it would remove the risk of a liquidity event in 2021 and perhaps also in 2022,” he added. “It would be more meaningful if they raised $3BN or $4BN, because this pushes out liquidity risk while providing capital to get started on the network build. If they announce a strategic partner or customer, it would be more meaningful still.”
As the crisis intensified, Dish itself has signaled its commitment to build a wireless network, which was further reinforced with the Mavenir announcement last week. As to whether Dish is still on track to meet its buildout commitment deadlines or expects coronavirus-related delays, Dish could address those questions on its upcoming earnings call in May.
New Street’s take on Dish’s situation comes in contrast to that of MoffettNathanson, which put out a report about two weeks ago that outlined Dish’s challenges in a COVID-19 world. The crisis will impact its satellite TV business and its new prepaid business, pushing leverage still higher. “And that’s before spending a penny on building a wireless network,” wrote analyst Craig Moffett.
Moffett cut his price target on Dish to $15, down from $30. The 17 analysts offering 12-month price forecasts for Dish have a median target price of $36, according to CNN, with a high of $88 and a low of $15.
Chaplin acknowledged that Dish is a difficult investment for most of New Street’s clients because all of the value is in a network that still needs to be built, and the cash flows to support that network are five to 10 years away. Yet those who can’t invest in Dish still ought to pay attention to what they’re doing, “because they have the potential to upend a $1.6 trillion communications infrastructure market, if they are successful. The U.S. wireless industry has never faced a threat like this.”
In sum: “The risk to Dish and to the rest of the sector all lies in execution. We don’t doubt that there will be buyers for Dish’s network capacity once the network is built, and we don’t doubt they will find the capital to build it. The building is the thing.”