Kerrisdale report on Dish: 'Carriers have plenty of spectrum'

Dish Network's (NASDAQ: DISH) stock fell slightly yesterday following a report from short-selling investment firm Kerrisdale Capital describing Dish's spectrum holdings as a "warehouse full of overpriced inventory."

Dish's stock fell from around $47 to around $45 per share following the release of Kerrisdale's full report. Not surprisingly, Dish rejected Kerrisdale's argument that its spectrum holdings are not as valuable as Wall Street believes.

Kerrisdale's attack on Dish, and Wall Street's reaction, is noteworthy as the nation's wireless carriers and others gear up to bid on the FCC's massive incentive auction of TV broadcasters' unwanted 600 MHz airwaves. The FCC recently announced it will auction 126 MHz of spectrum during the event -- the maximum amount the agency had hoped to make available -- and that roughly 100 entities will bid in the auction scheduled to start in the coming weeks.

Against that backdrop, Kerrisdale issued a reported this week arguing that Dish has spent billions to amass a trove of spectrum holdings that Kerrisdale argues are no longer as valuable as they once were. "Carriers have plenty of spectrum already," Kerrisdale argues in its report on Dish. "The scarcity of spectrum is vastly overstated." Kerrisdale also created a website called "Make Spectrum Great Again" to explain its argument against Dish.

Essentially, the firm argues that the declining value of wireless spectrum overall -- coupled with Dish's flagging satellite TV business -- indicates that Wall Street has grossly overvalued the company.

Dish, for its part, rejected that argument. "We understand Kerrisdale is shopping a negative report on DISH and has shorted our stock in an attempt to make a short-term gain while DISH is in an FCC-mandated quiet period [for the incentive auction]," the company said in a statement. "We will continue to manage the business for the long-term benefit of our shareholders as we have done over the last 35 years."

As a short-seller, Kerrisdale essentially is betting that Dish's stock declines in value during the coming months. Indeed, as CNBC points out, the company has been successful in this financial strategy -- Kerrisdale is currently the 12th-best short-seller operating today, according to Activist Shorts Research and reported by CNBC.

Meaning, Kerrisdale has a vested interest in the outcome of the issue, though a Kerrisdale representative said the firm isn't working for any of the companies like Verizon (NYSE: VZ) that might be interested in buying Dish's spectrum holdings.

Further, a number of Wall Street analysts have argued against Kerrisdale's findings. Analysts at Citi Research agreed with the firm that the overall value of spectrum won't necessarily increase in the coming months and years, but they disagreed with much of the rest of the firm's arguments. "Wireless carriers do not have vast amounts of excess capacity," the Citi analysts wrote in a report titled "Kerrisdale: Absolutely Not a Thesis Changer."

Added the Citi analysts: "This is particularly true for Verizon that has a more acute need for capacity than rivals."

New Street Research analyst Jonathan Chaplin also took issue with Kerrisdale's report, specifically pointing to the massive $40 billion in bids raised during the FCC's recent AWS-3 spectrum auction. "We would suggest that the carriers are probably best positioned to understand what their spectrum needs are and how much they will pay. Based on their actions, it seems the carriers have a very different view than Kerrisdale," Chaplin wrote.

Dish owns roughly 75 MHz of spectrum nationwide, holdings that include AWS-3, PCS H Block and AWS-4 licenses. The company is also among the bidders signed up to participate in the FCC's upcoming incentive auction of TV broadcasters' unwanted 600 MHz airwaves. Dish executives have said the company is open to selling its spectrum or partnering with a wireless carrier to build out a network using its spectrum licenses; analysts have said AT&T or Verizon may ultimately ink an agreement with Dish to purchase its mid-band spectrum holdings.

For more:
- see this Kerrisdale PDF report

Related articles:
Dish warns key 5G spectrum 'will be controlled almost exclusively by Verizon' if XO deal approved
Thanks to the incentive auction, it's possible for a new wireless carrier to launch in the U.S.
Analysts: Verizon, AT&T should purchase Dish Networks' spectrum

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