Dish Eyes More Spectrum With LightSquared Bid

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Quick Take

  • Dish Network has made a $2 billion bid to acquire LightSquared’s spectrum.
  • The Federal Communications Commission blocked LightSquared’s network in 2012 due to its  potential interference with GPS, which is widely used by the defense industry.
  • LightSquared voluntarily filed for chapter 11 following the network block. Given the saturation in the U.S. pay-TV market, Dish continues to eye spectrum to pursue its wireless ambitions.

Dish Network (NASDAQ:DISH) has made a $2 billion bid to acquire LightSquared Inc., which is currently navigating its bankruptcy proceedings. [1] Dish has been aggressively eying spectrum for some time and has spent around $4 billion in such acquisitions. While the pay-TV market is saturated in the U.S., Dish sees growth in the wireless industry. Earlier the company has made a bid to acquire wireless carrier Sprint (NYSE:S), which can potentially bring Dish’s portfolio of spectrum to use.

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See our complete analysis for Dish Network

The LightSquared Story

LightSquared had been developing a wholesale 4G wireless broadband network integrated with satellite coverage across the U.S. In early 2012, the Federal Communications Commission (FCC) moved to bar the company’s planned national broadband network after being advised by the NTIA (National Telecommunications and Information Administration), which is the federal agency that coordinates spectrum uses for military and other federal government entities. Later in May 2012, the company voluntarily filed for chapter 11 in order to have enough room to continue working through the regulatory process and allow the company to build 4G LTE wireless network. [2]

Interestingly, Sound Point, a hedge fund with ties to Mr. Ergen, CEO of Dish Network, has been purchasing LightSquared debt in the recent months. [3] LightSquared’s debt program contains a provision, which limits strategic buyers including Dish from purchasing its debt. Dish raised $1.5 billion from the market in December last year. The company stated that the proceeds will be used for general corporate purposes that may include spectrum deals. [4] The current offer is all in cash and avoids the issue pertaining to debt purchases.

Future For LightSquared And Dish

If LightSquared were to accept this bid, it would be able to pay off roughly $1.7 billion in debt held by various hedge funds, and there will still be some value left for the company’s preferred shareholders.  Mr. Ergen has been very open about his wireless ambitions and Dish Network has been aggressively acquiring wireless spectrum for a while in order to enter this space. In 2011, Dish acquired bankrupt DBSD and Terrestar for their spectrum. Both acquisitions, valued at $2.9 billion, were a part of the company’s initiative to build a wireless service offering voice, video and high-speed Internet, both at home and for mobile devices. [4] The bid for LightSquared spectrum is clearly another attempt to move into the fast-growing wireless industry. Dish is also seeking to buy wireless carrier Sprint, which could put all these airwaves to use. (Read: How Does Sprint Fit In Dish’s Wireless Ambitions?)

However, there is an underlying problem with LightSquared’s airwaves. These are similar to the ones used by Global Positioning System (GPS) navigation systems. FCC thus blocked the company’s national broadband network in 2012. The good news for Dish is that earlier this month FCC chief said that he expects LightSquared to eventually win approval for using its airwaves, as they are too valuable to be left unused. [5]

Dish wants to have a competitive edge in the saturated U.S. pay-TV market, by offering a viable bundling option where it can combine its satellite service and wireless spectrum licenses with wireless capabilities. It is clear that Dish will pursue its wireless ambitions regardless of the outcome with Sprint.  We believe that going forward a bundling option could be something that will drive growth for Dish.

Our price estimate for Dish Network stands at $38, roughly in line with the market price.

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Notes:
  1. LightSquared Gets Ergen Bid, Wall Street Journal, 20 May, 2013 []
  2. LightSquared Implements Voluntary Chapter 11 Restructuring, LightSquared Inc. Press Release, May 14, 2012 []
  3. Hedge Fund Buys Up LightSquared Debt, FIN Alternatives, Apr 5, 2013 []
  4. Dish’s SEC Filings [] []
  5. FCC Chief Sees LightSquared Getting Cleared for Airwaves, Bloomberg, May 8, 2013 []