Carriers eye Dish's spectrum, but a newcomer may also make a play: BTIG

Verizon, AT&T and T-Mobile all continue to covet Dish Network’s spectrum, BTIG Research opined, but a newcomer could leverage those airwaves to elbow its way into a competitive U.S. wireless market.

“The majority of our time and coverage over the past 18 months has been on better understanding 5G and the ongoing densification of wireless networks,” BTIG’s Walter Piecyk said in a research note (sub. req.). “This resulted in an upgrade of Zayo to buy and new coverage of CommScope and Lumos. The bottom line is that the more we learn about 5G and small cells, the more we are convinced that Dish’s mid-band spectrum offers the most cost-effective way to add capacity into wireless networks over the next 3-5 years.”

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Most of Dish’s spectrum holdings are in two bands, according to BTIG: Band 66 includes 20 MHz of the 40 MHz of AWS-4 spectrum the company bought during the DBSD and TerreStar bankruptcies in 2011 as well as the paired AWS-3 spectrum its designated entities bought at auction last year. And Band 70 includes the remaining 20 MHz of the AWS-4 spectrum from the two bankruptcies as well as 15 MHz of uplink-only spectrum acquired in the AWS-3 auction and 5 MHz of downlink airwaves from 2014’s H-Block auction.

Dish’s Band 66 spectrum is valued at $1.83/MHz/POP, BTIG estimated, and Band 70 is valued at $1.26/MHz/POP. Meanwhile, the value of Dish’s satellite TV business has come under scrutiny as the overall pay-TV market loses traction due to rising content costs and sliding subscription rates.

“There is nothing really positive to say about this business other than to hope that Sling can offset the obvious secular declines in that business,” Piecyk wrote. “The erosion of the Pay TV business might provide a compelling argument to obtain regulatory approval to sell Dish to an existing Pay TV provider, which could realize material synergies by lowering the ever-rising content costs and delivery mechanism…. A buyer could also promise to use a portion of these cost synergies to invest in broader competitive broadband services on a wired or wireless basis.”

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Meanwhile, there are reasons to believe any of the three biggest wireless carriers in the U.S.—all of which are participating in the incentive auction, as is Dish—could make a move for Dish’s airwaves. T-Mobile could spend $20 billion or so for Dish’s Band 66 spectrum without lifting forward debt leverage rations to unmanageable levels. Verizon lost postpaid phone subscribers for the first time in the third quarter, and its unwillingness to offer unlimited data may signal a need for more spectrum. Also, AT&T could use Dish’s spectrum to fully leverage its pending its Time Warner acquisition, adding capacity for new video services and preventing competitors from compiling more spectrum.

Perhaps the most interesting—if unlikely—scenario is the emergence of a tech company or cable operator looking to use Dish’s spectrum to jump onto the wireless playground. That proposition has long been dismissed as being a cost-prohibitive strategy for entering an ultra-competitive market, but conditions may finally be right for a new player.

“With the proliferation of fiber and the dramatic drop in radio costs, the cost to build a new network from scratch has never been lower,” Piecyk wrote. “While some claim the wireless market is overly competitive, wireless operators are generating their highest EBITDA margins ever. We no longer think it’s unimaginable if a tech or cable operator chose a greenfield build and note that Dish is the only company that offers the assets to achieve that goal.”