Dish's $1B DBSD purchase sparks spectrum intrigue

Dish Network's $1 billion purchase of bankrupt satellite firm DBSD North America has sparked speculation among analysts about Dish Networks CEO Charlie Ergen's plans to consolidate spectrum.

Under the terms of deal, Dish will provide $87.5 million of debtor-in-possession financing as DBSD exits bankruptcy. The U.S. Bankruptcy Court in Manhattan will hear details of the agreement Feb. 15, and the transaction is subject to FCC approval and DBSD's emergence from bankruptcy.

What does Ergen plan to do with DBSD's 20 MHz block of spectrum in the S-Band? Ergen also is the chairman of EchoStar, which is trying to secure bankrupt TerreStar Networks' assets. EchoStar is TerreStar's largest creditor. Like DBSD, TerreStar holds 20 MHz of S-Band spectrum, and has been trying to launch an all-IP, integrated satellite-terrestrial network using satellite spectrum. 

"This is [Dish founder] Charles Ergen playing chess, and he's very good at it," Kaufman Brothers analyst Todd Mitchell told the New York Times, adding he believes DBSD is worth $2 billion to $3 billion. "Dish also has some spectrum, and if you put DBSD and Dish together you could create a 4G or LTE network--it's a situation where one plus one equals three." Ergen also secured 6 MHz of 700 MHz spectrum in the FCC's 2008 auction.

In a lengthy post outlining the DBSD deal, BTIG analyst Walter Piecyk offered several options that Ergen could take if he acquires all of the spectrum. "We believe that combining the two 20 MHz S band blocks of spectrum of DBSD and TerreStar increase the value of the spectrum by at least 25%," Piecyk wrote. "In the 2006 AWS auction, the 10 MHz D and E blocks were sold for $0.62 per MHz POP and $0.61 per MHz POP respectively, while the 20 MHz F block was sold for $0.73 per MHz POP, a 20% premium. We estimate deeper spectrum positions are worth more because it increases the technology alternatives that can be deployed and improves the spectral and therefore capital efficiency. That is more relevant to operators today than it was during the AWS auction in 2006 which occurred before the first iPhone was ever sold and the subsequent explosion in data."

Piecyk posits that Ergen could amass as much spectrum as either Sprint Nextel (NYSE:S) or T-Mobile USA. In order to make the best use of that spectrum though, Piecyk wrote, Ergen likely would have to seek and receive a waiver from the FCC to operate a terrestrial-only service. The FCC recently granted such a waiver to LightSquared, which is building a wholesale LTE network.

For more:
- see this WSJ article (sub. req.)
- see this NYT article
- see this BTIG blog post (registration req.)
- see this FierceMobileContent article

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