Dish Network (NASDAQ:DISH) will report its Q3 2013 results on November 12. It will be interesting to see if the company manages to benefit from the subscriber losses of Time Warner Cable (NYSE:TWC) and add net customer gains. The bigger buzz with Dish will obviously be around its wireless plans and we will look for any updates on the same.
There have been few suits against Dish and its chairman Charlie Ergen surrounding the LightSquared bid. The troubled wireless company is still seeking alternative bids to the $2.22 billion cash offer from Dish for its assets and it has contacted more than 90 potentially interested parties.  We’ll also look for updates on its LightSquared bid as a bankruptcy auction has been planned for December 6, with Dish’s offer serving as a stalking horse.
Pay-TV Subscriber Trends Will Be In Focus
According to our estimates, pay-TV contributes more than 75% to Dish’s value. After adding 36,000 subscribers in Q1, the company lost 78,000 customers in Q2 due to the higher churn rate and lower gross new additions.  The pay-TV industry is witnessing a decline in subscribers, especially from cable operators such as Time Warner Cable and Comcast (NASDAQ:CMCSA), who have been consistently losing subscribers for quite some time now. The increased competition from telcos and the rise of alternative video platforms such as Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) are adding to the woes.
During the third quarter this year, Comcast lost 129,000 and Time Warner Cable lost 306,000 subscribers (See – CBS Dispute Weighs Heavy On Time Warner Cable Results, Broadband And Pay-TV Subs Decline). However, DirecTV (NASDAQ:DTV), the largest satellite pay-TV operator, benefited from the Time Warner Cable losses and added 139,000 net subscriber additions (Also Read – DirecTV Posts Solid Subscriber Growth In The U.S.) In a saturated market, loss of subscribers to one, translates into gain for the other. We’ll be watching for Dish’s pay-TV subscriber trends and if it also manages to gain net subscribers in this quarter.
Wireless Development Is The Key For Future Growth
Dish is striving to compete better in the saturated U.S. pay-TV market by arming itself with a viable bundling option. Unlike its cable counterparts, Dish has been so far relying purely on pay-TV rather than bundling broadband and telephone services. It hasn’t been able to match the performance of its satellite rival DirecTV, which has a stickier subscriber base and offers exclusive features such as NFL Sunday Ticket. DirecTV also has a strong footprint in Latin America market, which is driving the company’s growth.
Dish expects to see growth in the wireless industry and has therefore been amassing spectrum over the past few years. In 2011, the company 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. Overall, Dish has spent nearly $4 billion on such acquisitions since 2007.  In 2012, Dish got the FCC to reclassify the spectrum for land-based cellular use. According to some reports, the spectrum’s value shot up overnight to around $10 billion to $12 billion.  We will be closely watching for any updates from the management on its next move related to Dish’s amassed pool of spectrum and its wireless ambitions.
What’s Happening With Dish’s Bid For LightSquared?
Why Is Dish Eyeing LightSquared?
In May 2013, Dish made a $2 billion bid to acquire LightSquared Inc., which is currently navigating its bankruptcy proceedings. Dish and LightSquared held a similar vision of an LTE network. LightSquared with its ambitious LTE plans was able to interest investors earlier, but the company soon met with roadblocks such as the U.S. FCC move to bar LightSquared’s planned national broadband network led the company to file for bankruptcy. 
The issue with LightSquared’s airwaves is that they are similar to the ones used by Global Positioning System (GPS) navigation systems and can cause interference. However, earlier in May, FCC chief said that he expects LightSquared to eventually win approval for using its airwaves, as they are too valuable to be left unused.  For Dish, LightSquared’s spectrum would be of specific benefit given that it’s licensed for Mobile Satellite Service (MSS). Dish amassed its MSS spectrum through the acquisitions of DBSD and TerreStar for $2.7 billion in 2011.
The Series Of Events That Unfolded In Past Few Months
In August, Harbinger Capital sued Dish and Ergen claiming manipulation of the bankruptcy process.  Ergen, through a hedge fund, has been acquiring LightSquared debt since the company entered Chapter 11 in May 2012. Ergen is now LightSquared’s biggest creditor with more than $1 billion in secured debt. Harbinger wants to hold onto LightSquared’s valuable licenses in the company’s reorganization and is trying to block Ergen and Dish from acquiring them. On August 30, LightSquared proposed a reorganization plan that includes a potential sale of wireless spectrum instead of an auction led with a $2.2 billion bid from Dish. 
In September 2013, Dish’s shareholders in a derivative filing claimed that Charlie Ergen was looking out for his own conflicting interest as the holder of $1 billion in LightSquared debt and this has not only endangered the company’s bid for LightSquared’s spectrum but also exposed Dish to liability for interfering with the bankruptcy. Ergen in a response stated that he is the largest shareholder of Dish and would not risk losing billions of dollars for a few million-dollar gains (See - Dish Network’s Shareholders File A Suit Against Charlie Ergen Over The Secured Debt Of LightSquared).
Towards the end of September, a Manhattan bankruptcy judge approved an auction process that will include Dish’s $2.2 billion bid for 40 MHz of LightSquared’s wireless spectrum.  Later in October, the U.S. bankruptcy court in New York dismissed Harbinger’s Lighsquared lawsuit against Dish.  While LightSquared is now contacting more parties seeking alternative bids, Dish is expected to be the lead bidder at a bankruptcy court-supervised auction for LightSquared’s spectrum assets with its baseline bid of $2.2 billion. All eyes will now be on December when the auction takes place and if Dish successfully acquires the LightSquared spectrum.Notes:
- LightSquared Still Seeks Wireless Spectrum Asset Bidders, Bloomberg, Nov 4, 2013 [↩]
- Dish Network’s SEC Filings [↩] [↩]
- Dish Acts to Boost Value of Spectrum, The Wall Street Journal, Sep 13, 2013 [↩]
- Dish Eyes More Spectrum With LightSquared Bid, Trefis, May 23, 2013 [↩]
- FCC Chief Sees LightSquared Getting Cleared for Airwaves, Bloomberg, May 8, 2013 [↩]
- Harbinger Capital Sues Dish’s Ergen Over Move on LightSquared Debt, The Wall Street Journal, Aug 6, 2013 [↩]
- LightSquared Proposes Outline for Reorganization, Bloomberg, Aug 30, 2013 [↩]
- Dish Is One Step Closer To Acquiring LightSquared’s Assets, Trefis, Oct 3, 2013 [↩]
- Dish wins dismissal of Harbinger’s LightSquared lawsuit, Reuters, Oct 29, 2013 [↩]