A new report from Wall Street investment analysts at MoffettNathanson Research delves into Dish Network’s prospects for building out a greenfield 5G network. Spoiler alert: Cue the Debbie Downer tune from Saturday Night Live.
The report reiterates some harsh realities for the satellite TV company, which also may be classified as a spectrum-acquisition company given its history. The analysts reiterated their rating on Dish shares as "Sell" with a target price of $15 per share.
Two central issues are addressed: The cost of meeting Dish’s buildout requirements and how it will compete in a retail versus wholesale model.
Many assume Dish will compete as a wholesaler due to the enormous costs associated with being a retailer. Its recent acquisition of nearly $2 billion of Citizens Broadband Radio Service (CBRS) spectrum seems to support a wholesale strategy, and it's a logical target in a wholesale/enterprise/regional approach, the report says, noting Dish hasn't endorsed this or any other theory about its plans.
Currently, Dish's wireless business is being assigned a presumptive net present value of about $15 billion, which the analysts characterize as “irrationally optimistic.”
Dish’s spectrum is worth more than that, they say, but it can’t be sold without first building and operating a wireless network and wireless business, and those costs and operating losses would all have to be netted against spectrum value.
It's worth noting that these same analysts earlier this year were skeptical about the price tag on Dish’s network build, which the company has pegged at $10 billion. The analysts figure that price will be significantly higher when labor, tower leases, backhaul and all the rest are added to the equation.
“Our bearish view of Dish is not based on skepticism about Dish itself so much as it is our skepticism about the wireless market,” wrote analyst Craig Moffett. “In the end, our valuation and target price for Dish rest on a simple conceptual question. What is the likely NPV [net present value] of a greenfield entry into the wireless business in the United States? If one assumes, as we do, that the debt on Dish’s satellite TV business is likely already greater than the enterprise value of that business, but that the debt on the satellite business does not have recourse to the yet-to-be-built wireless network, then the equity value of Dish shares is simply equal to the NPV of whatever it is that Dish decides to build.”
The report includes a reminder that Dish simply selling the spectrum it has acquired over the years is not an option – even though that was the subject of much industry speculation before the Sprint/T-Mobile merger.
Under the conditions of the Department of Justice (DoJ) consent decree that was part of the government’s remedy for Sprint to merge with T-Mobile, Dish can’t sell the spectrum to any incumbent for six years. During that time, it has to build out the first 70% of the country within five years – or it loses the spectrum and pays a huge fine, and “that’s not an accident,” Moffett wrote. “The FCC and DoJ clearly structured the consent decree to prevent precisely this scenario. After all, the entire agreement was predicated on the notion that Dish could be credibly counted upon to become a fourth player in the market.”
What about those fines?
While Dish’s buildout requirements have been widely reported since they were first unveiled last year, Moffett’s report includes a footnote about the penalties if Dish doesn’t meet them.
Here’s the pertinent footnote: By June 2022, if Dish is unable to provide 5G service to at least 20% of the U.S. population and hasn’t deployed a core network using its AWS-4, lower 700 MHz E Block and AWS H Block licenses, then Dish will be fined $16 million for each frequency band that misses the population goal by 25% or less, $32 million for each frequency band that misses the population goal by 25-50%, $48 million for each frequency band that misses the population goal by 50-75%, and $66 million for each frequency band that misses the population goal by more than 75%.
There’s more: “By June 2023, if Dish is unable to cover at least 70% of the U.S. population with the AWS-4, lower 700 MHz E Block and AWS H Block bands,” then Dish must pay $6 million for each percent missed by the AWS-4 band, $2 million for each percent missed by the lower 700 MH E Block band, and $2 million for each percent missed by the AWS H Block band (with fines regarding these three bands capped at $1 billion), the report states.
Dish as disruptor
For its part, Dish has been busy adding wireless veterans to its network and retail teams in order to meet its requirements. The company has announced vendors including VMware, Altiostar, Mavenir, Mattrix and for its radios, Fujitsu of Japan, which has deployed radios for NTT DoCoMo.
Speaking at an Incompas event last month, Tom Cullen, EVP, Corporate Development at Dish, said Dish’s network team is looking at it as a unique opportunity. No truly successful greenfield network has been built in the U.S. in decades. As it’s doing the RF planning, Dish can identify existing fiber, rooftops, macro towers and so on to incorporate as assets rather than doing an overlay on an existing network.
“Obviously, we have to prove ourselves, so the next year is critical in terms of deploying the network,” not only physically, but in an automated, software-centric fashion from end-to-end, Cullen said. “We’re confident in that, but we understand that until we demonstrate it, there will be some skepticism, but we believe it leads to a lot of disruption in the business.”