Dish Network (NASDAQ: DISH) Chairman and founder Charlie Ergen, who has masterminded the company's push into the wireless market through spectrum purchases and regulatory gambits, will take over as CEO of the company at the end of March. Dish said its current CEO, Joe Clayton, will leave his position and Dish's board as of March 31.
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Clayton has been CEO of Dish since June 2011, when Ergen stepped down from that role to focus on long-term business development and acquisition tactics as part of an effort to expand Dish's place in the market beyond its role as a satellite pay-TV provider.
Ergen's challenge will now be to execute a strategy to get into the wireless business, now that the company and its partners have amassed more than 75 MHz of wireless spectrum in a series of acquisitions and spectrum auctions. Ergen has said he would like to partner with a wireless carrier, and last week T-Mobile US (NYSE:TMUS) CEO John Legere said he was open to working with Dish. In 2013 Dish, led by Ergen, unsuccessfully bid against SoftBank to acquire Sprint (NYSE: S) and Sprint partner Clearwire.
In an interview with the Wall Street Journal, Ergen said he views the wireless industry as "relatively in its infancy" and thinks the Internet of Things will spur tens of billions more connected devices coming online in the next 10 years and will "lead to tremendous growth."
"Some people in the [wireless industry] today run the business as a mature business, but behind the scenes they clearly see that this thing has got another 50 years to go," he said.
Dish has faced criticism that it worked with so-called designated entities in the AWS-3 spectrum auction to acquire spectrum--and secure $3.3 billion in discounts designed for small businesses. "We basically played by the rules and bid economically for the auction," Ergen said, adding that Dish will offer further comment "at the appropriate time."
Dish participated in the auction through three entities: American AWS-3 Wireless, Northstar Wireless and SNR Wireless. American AWS-3 Wireless is a wholly-owned, direct-subsidiary bidding entity for Dish, and it did not win any spectrum in the auction, though it did make bids. Northstar Wireless and SNR Wireless, however, made $13.3 billion in gross provisional winning bids, but they are to pay around $10 billion because they both qualify for the FCC's 25 percent discount for designated entities and small businesses.
In a filing with the Securities and Exchange Commission, Dish detailed its financial relationships with both Northstar and SNR. Dish holds an 85 percent non-controlling interest in both entities. As Jefferies analysts Jefferies analysts Mike McCormack, Scott Goldman and Tudor Mustata wrote in a research note, Dish will fund the entities to cover their bill to the FCC through a loan worth around $8.5 billion and an equity investment of roughly $1.3 billion. Dish also has what are known as "first refusal rights," which, as the Jefferies analysts note, means that Dish can effectively control the price for which the spectrum the entities acquired will be sold, "which directly impacts the valuation of [Dish's] own comparable (and larger) AWS-4 spectrum portfolio."
If the spectrum gets sold at a price higher than what the entities paid in the auction, Dish benefits from the return on its equity investment, interest from the loans and a higher market value for its own spectrum portfolio. "If valuation were to deteriorate, Dish could purchase the spectrum itself, forcing the potential buyer to negotiate with Dish directly," they wrote. "If the DEs were to deploy their spectrum, Dish would still receive interest from the loans and an equity investment in the associated company."
Ergen will likely discuss the designated entities and Dish's wireless plans during the company's earnings conference call today.
Ergen also indicated that he may not remain CEO for long. As the company's wireless and online video units "become bigger parts of the business," Ergen said he would think of hiring a new CEO. "I'm not afraid to fire myself again," he said.
For more:
- see this release
- see this WSJ article (sub. req.)
- see this SEC filing
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