Dish's Ergen leaves door open to deal with T-Mobile, other wireless options

Dish Network (NASDAQ: DISH) Chairman Charlie Ergen said his goal was to keep the company's wireless options open, but again did not rule out a merger or partnership with T-Mobile US (NYSE:TMUS), which itself is on the hunt for more spectrum.

Charlie Ergen, Dish Network

Ergen (Source: Dish)

Speaking on Dish's third-quarter earnings conference call Tuesday, Ergen said the company has "a lot of optionality" when it comes to its wireless prospects. Dish is awaiting an auction of LightSquared's spectrum assets on Nov. 25, in which it is the lead bidder. Dish has said it likely will not meaningfully participate in the auction of the 1900 MHz H Block, which is scheduled to begin Jan. 22, but the company has agreed to bid the reserve price of $1.56 billion.

Dish tried and failed to land both Sprint (NYSE:S) and Clearwire this spring; SoftBank wound up taking control of Sprint and Sprint bought Clearwire, leaving Dish with more than 40 MHz of wireless spectrum but no partner. Dish owns 40 MHZ of 2 GHz AWS-4 spectrum and also has small 700 MHz holdings.

Ergen said Dish could sell its spectrum or build out its network on its own. Neither of those options has "a high probability," but they are possible. "And in between that is to partner with somebody who's already in the business," he said, according to a Seeking Alpha transcript. "And that partnership can take any number of forms of things going forward."

T-Mobile said Monday it plans to sell new shares in a move that could raise as much as $1.8 billion. The company could use the cash to acquire spectrum in upcoming auctions. Ergen declined to comment on if T-Mobile is talking with Dish about buying some of its spectrum, though T-Mobile has firmly expressed its preference to acquire low-band spectrum below 1 GHz.

However, Ergen said he had not ruled an acquisition of T-Mobile. "I don't really rule out anything," he said.

"I think acquiring a company, selling our company, merging, partnering, those are all on the table," he said. "Those are all part of optionality, right?"

On the LightSquared front, Dish has asked the FCC to let it use the 2000-2020 MHz band of its AWS-4 spectrum for downlink operations instead of uplink, and LightSquared has asked the FCC to let it use its L-band spectrum for uplink operations. The theory is that Dish could then pair its AWS-4 spectrum with LightSquared's airwaves and have more spectrum for downlink (Dish also controls the 2180-2200 MHz AWS-4 band for downlink). All of the maneuvering could substantially enhance the value of Dish's spectrum portfolio, according to analysts.

Further, the FCC's recent order on 700 MHz interoperability addressed interference concerns by modifying the technical rules of the 700 MHz D and E Blocks to remove the likelihood of interference. Dish agreed to reduce the power levels of transmissions on its E Block spectrum, and in return got an extension on its buildout requirements. Dish had asked the FCC to set a new buildout deadline on its 700 MHz spectrum that would require the company to cover 40 percent of the population covered by its licenses by 2017 and 70 percent by 2021.

In terms of Dish's spectrum over all, Ergen said: "And I like where we are. And it's an asset that I think continues to increase in value on our balance sheet. And I think it helps us potentially transform the company going forward because we know we're in a mature business."

New Street Research analyst Jonathan Chaplin wrote in a research note that his views on what Dish will do with its spectrum were slightly complicated by T-Mobile's stock sale. "We doubt that TMUS will enter the fray for LightSquared; but they might," he wrote. "On the other hand, DISH could sell TMUS its 700 MHz spectrum, but we doubt it. TMUS' capital raise means that there is another bidder for spectrum sooner than we had expected, which modestly increases the risk for DISH. Beyond the near term, we see the two most likely outcomes for DISH to be: 1) either DISH will merge with DTV and retain its spectrum to build out a network, or; 2) DISH will sell, most likely to AT&T."

For more:
- see this Seeking Alpha transcript
- see this Bloomberg article
- see this Denver Business Journal article

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