Shares in Dish Network received a downgrade from Guggenheim on Friday amid concerns about its ability to compete in the wireless industry.
Guggenheim analyst Mike McCormack downgraded the stock from Buy to Neutral and removed it from the firm’s Best Ideas list.
“In our view, attacking a wireless industry with deeply entrenched competitors with a starting point of less than 10mn prepaid subscribers and a lengthy and costly build ahead isn’t a strategy we can endorse,” McCormack wrote in a note for investors.
Dish has amassed a “very impressive portfolio” of both mid- and low-band spectrum, the analyst noted. The company also has a relatively small amount of millimeter wave (mmWave) spectrum.
But buildout requirements for Dish are fast approaching and patience apparently is running out when it comes to the emergence of a significant partner. Speculation has centered to some extent on names like an Amazon or Google potentially partnering with Dish, but nothing on that level has been announced.
“In our view, this is an indication that management wants to go after a retail strategy and is willing to engage in a 7-year buildout for $10bn. That isn’t to say a wholesale opportunity won’t also be targeted, but apparently retail is a core component,” McCormack wrote.
Additionally, “the consent decree deal reached in July of 2019 with the DoJ was already restrictive regarding the sale of spectrum to the most likely providers interested,” he wrote, adding that they remain perplexed by Dish Chairman Charlie Ergen’s long-term intentions, “but believe launching a new wireless company with a starting point of ~9mn prepaid subscribers, zero postpaid subscribers and a multi-year, multi-billion network build ahead is a tough setup to compete against three fully entrenched competitors.”
Ergen, the co-founder and chairman of Dish, on more than one occasion has acknowledged the skeptics who question Dish’s plans to build a 5G network for an estimated $10 billion and become the nation’s fourth facilities-based wireless carrier. It’s the same type of skepticism he encountered years ago when launching his satellite TV business.
“We don't spend our time and effort and capital for things we're thinking" are going to fail, Ergen said during the company’s last earnings conference call, according to a Seeking Alpha transcript. “Every day, we get better. We build value every day. It's just - you're not going to see it outside of our company until obviously, we deploy in major markets.”
While Dish will have some small 5G markets up in the first quarter of next year, it won’t have a major market up and running until the third quarter, Ergen said. Meanwhile, they continue to build the wireless team and plan the network deployment, but it’s dependent on open Radio Access Network (RAN) radios from Fujitsu, and those won’t arrive in volume until the second half of 2021.
Other analysts expect big things from the company, albeit not for a while.
“Dish truly has the potential to disrupt the U.S. wireless market,” wrote Jonathan Chaplin of New Street Research in a note for investors last month. “We believe their all-5G network could drive a unit cost that is 25% of Verizon’s, which should enable DISH to take meaningful share in wireless, creating significant upside for the equity. Most of the value we see in DISH still lies 5-10 years away, however, so the investment will require patience.”