There continues to be speculation about whether Dish Network (NASDAQ: DISH) will angle to buy T-Mobile US (NYSE:TMUS) or partner with Sprint (NYSE: S) to make use of its more than 50 MHz of wireless spectrum. However, according to a new research note from New Street Research analyst Jonathan Chaplin, Dish's best path forward could be to sell its spectrum to either Verizon Wireless (NYSE: VZ) or AT&T (NYSE: T) and still keep its satellite TV business.
AT&T is currently in the process of buying Dish rival DirecTV (NASDAQ: DTV). And Verizon Communications CEO Lowell McAdam has made clear that he doesn't want to own a satellite business, but that Dish "has something interesting assets."
"Dish wants to capture some of the bourgeoning value they see in wireless, they want a network partner, and they want to be able to offer a full suite of voice, content and broadband services in the home and on the go," Chaplin noted.
Indeed, Dish Chairman Charlie Ergen said this week that in terms of wireless, Dish's "dream would be to compete in the marketplace, bring a better product to consumers, be disruptive, be innovative and enhance the video business that we have today."
Dish controls more than 50 MHz of spectrum, including 40 MHz in the AWS-4 band and 10 MHz of the 1900 MHz PCS H Block, part of which is adjacent to AWS-4. Ergen compared Dish's spectrum to the equivalent of the largest untapped oil reserve in the wireless market. He also suggested that because Dish has the option of converting all of its AWS-4 spectrum to downlink spectrum where the most user demand is, its spectrum will be worth twice the value of whatever carriers wind up paying in this fall's AWS-3 spectrum auction. The AWS-3 auction includes a mix of uplink and downlink spectrum.
According to Chaplin, there is a scenario in which Dish could sell its spectrum to Verizon or AT&T and all sides would benefit. First, Dish would sell its spectrum to one of the carriers for "at least" $28 billion, and that buyer could purchase Dish and then spin off its satellite business to avoid a massive tax bill.
"In return, Dish gets access to capacity on the carrier's network in the markets where they need it. They use this capacity for both fixed and wireless services," Chaplin wrote. "Dish's capacity needs are a great complement to those of the carriers: Dish needs capacity in rural markets where many of their subs reside and where wireless is an adequate alternative to weak wireline plant; the carriers need capacity in dense urban markets where Dish has very few customers and would be at a significant competitive disadvantage. With this approach, Dish monetizes the spectrum while at the same time significantly increasing the value of their DBS business."
Chaplin noted that in the long run Verizon and AT&T will need more spectrum beyond what they are expected to acquire in the AWS-3 auction and next year's incentive auction 600 MHz broadcast spectrum, in which they will face restrictions on bidding.
"Verizon and AT&T currently have 38 % and 34% of industry revenues but just 16% and 20% of industry spectrum, respectively," Chaplin wrote. "Assuming spectrum is fully utilized over time, a carrier's traffic share should match their spectrum share, and revenue share should match traffic share. Both companies should be able to increase spectrum share modestly over the next two auctions; however, they won't come close to closing the gap. Dish's spectrum would help tremendously--it is largest source of capacity available today and would take Verizon and AT&T to 31% and 45% spectrum share, respectively (post auction)."
Currently, AT&T and Verizon "both have less than 1 MHz of downlink spectrum per million retail subs, a shortfall relative to TMUS and Sprint with 1.16 and 2.25 MHz/sub, respectively. With Dish's spectrum, Verizon would be able to catch up to TMUS (54% improvement in spectrum/sub) whereas AT&T would gain a significant advantage over all carriers except for Sprint (54% improvement)."
- see this Seeking Alpha transcript
Sprint, Dish will start fixed TD-LTE tests within a month
Dish's Ergen: Collapse of Sprint/T-Mobile talks 'increases' our wireless options
Rumor Mill: Iliad working with Dish, Cox, Charter and others to improve T-Mobile bid
Dish signals it will bid in 600 MHz spectrum auction
Verizon's McAdam: We're not talking to Dish about any deals