Dish's DE partners get extension from FCC to make $3.3B in payments on AWS-3 spectrum

Dish Network's (NASDAQ: DISH) designated entity (DE) partners, in which Dish holds an 85 percent economic stake, received an extension from the FCC to pay the $3.33 billion they owe for their AWS-3 spectrum licenses.  

The two DEs, Northstar Wireless and SNR Wireless, had requested a two-week extension from the FCC, until Oct. 1, to pay the money, or deliver an irrevocable, standby letter of credit on what it owes with respect to the DE discounts the FCC voided. The DEs said that if they deliver a letter of credit by Oct. 1, the ultimate payment deadline remains Dec. 16, 2015.

FCC spokesman Neil Grace confirmed that the DEs asked for the extension and that the FCC granted it.

"The DEs' citing of 'new and complex business issues' as the reason for the request has led to some investor speculation (~5% move on the stock) that some event on Dish's path to monetize its spectrum assets could be imminent," Evercore ISI analysts Vijay Jayant, Vikash Harlalka and David Joyce said in a research note.

In August Dish Chairman and CEO Charlie Ergen said if the bidding credits for the DEs were denied, Dish would likely be pushed more toward leasing or selling its spectrum, even though that is "not in our heart where we wanted to go," in terms of entering the wireless market. Ergen also said that Dish is examining its corporate structure and that "it looks like it may be more attractive at some point to split our video business away from our spectrum business."

Verizon Communications (NYSE: VZ) CEO Lowell McAdam said earlier this week at a Goldman Sachs investor conference that Verizon would be interested in having a discussion about commercial terms for Dish's spectrum. 

"The spectrum that he has we have had discussions about how we can provide him megabytes and he could pay for it to with spectrum," McAdam said, referring to Ergen, according to a Seeking Alpha transcript of his remarks. "Those sorts of options are still open to us. But to get the spectrum by buying the entire company isn't something that we are interested in."

The FCC voted unanimously in August to deny the bidding credits to the DEs. The agency's staff examined the complex arrangements and financial connections between Dish and the DEs. The FCC staff found that Dish does have a controlling interest in Northstar and SNR, and therefore Dish's revenues should be attributed to them, which in turn made Northstar Wireless and SNR Wireless ineligible to receive the 25 percent bidding credits they applied for in the auction as DEs. Northstar is on the hook for $1.96 billion in additional payments, while SNR would need to pay $1.37 billion.

Dish's designated entities made $13.3 billion in gross provisional winning bids and won 702 licenses, winning 25 MHz of total spectrum including 13 MHz of paired spectrum. 

According to the Evercore analysts, Dish may have a window of around three months to "firm up some way of monetizing its spectrum assets" before the general anti-collusion rules kick in ahead of next year's incentive auction of 600 MHz broadcast TV spectrum.

"If not, then Dish's potential partners could be locked out until the incentive auction ends sometime by the middle of next year," the analysts said. They noted that with around $1.1 billion in cash on hand, "Dish possibly needs to access the capital markets to finance the payment if it intends to increase its ownership to 100% of the equity of the DE entities."

For more:
- see this FCC document

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