Dish Network Sweeps H-Block Spectrum Auction For $1.56 Billion

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Dish Network (NASDAQ:DISH) recently won the bidding for wireless broadband frequencies in all 176 U.S. markets auctioned by the Federal Communications Commission (FCC). [1] Dish bid exactly the $1.56 billion it promised the FCC that it would spend in exchange for more flexibility in how it uses other wireless broadband frequencies. While the FCC will be deploying the raised money for the licenses to fund a nationwide wireless communications network for emergency responders, Dish gets another 10 megahertz of spectrum, taking its total spectrum holding to 56 megahertz. Having amassed the spectrum, Dish can move forward with a number of options, such as leasing or selling the spectrum, launching its own nationwide wireless network, or partnering with an existing wireless carrier.

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Why Was Dish Interested In H-Block Auction?

The H Block is a 10 MHz block of paired airwaves that runs from 1,915-1,920 MHz (for the uplink) and from 1,995-2,000 MHz (for the downlink). Dish controls 40 MHz spectrum adjacent to a portion of the H Block, called AWS-4, which specifically runs from 2,000-2,020 MHz (for the uplink) and 2,180-2,200 MHz (for the downlink). However, Dish has asked the FCC to let it use the 2,000-2,020 MHz band for downlink operations instead of uplink as a condition for agreeing to bid the reserve price.

Late last year, the FCC had given the nod over extending the deadline for Dish to complete a national wireless broadband network. The FCC also gave the company flexibility in how it can use wireless frequencies. In return, Dish pledged to bid at least $1.56 billion in the FCC’s H-block auction of frequencies and to lower the power of transmissions on some former TV-station analog frequencies Dish bought in 2008. [2]

The bid for H-Block airwaves was 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. The satellite provider has been aggressively acquiring wireless spectrum for a while in order to enter the wireless space. In 2011, Dish acquired bankrupt DBSD and Terrestar for their spectrum. Overall, Dish has spent more than $5 billion on such acquisitions since 2007. [3]

Dish sees the bundling potential as a growth opportunity due to the saturation of the U.S. pay-TV industry. Pay-TV penetration is currently very high, with more than 90% of the U.S. TV households subscribing. Given the saturation level and slowdown in the housing market, it is difficult to see a significant increase in the number of the U.S. pay-TV subscribers. Moreover, fierce competition between satellite, telcos and cable operators, and the rise of alternative video platforms is adding to the woes of pay-TV operators. In such a scenario, wireless could fuel the future growth for Dish.

However, the question is how will Dish put the spectrum to use? Last year, the company made an unsuccessful attempt to acquire Sprint (NYSE:S) and failed to outbid Japanese telco Softbank. [4] There were talks between Dish and T-Mobile U.S. but even those appear to be fading away since Softbank has approached T-Mobile. Charles Ergen, co-founder and chairman of Dish Network, recently stated that Dish is not going to outbid SoftBank in any transaction and to the extent that the Japanese telco is going after T-Mobile, Dish won’t engage into that. [3] Given the circumstances, it appears that building its own network or partnerships with existing players is the road forward for Dish’s foray into the wireless arena.

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Notes:
  1. Dish Network wins all wireless Internet licenses in FCC auction, Denver Business Journal, Mar 3, 2014 []
  2. AWS-4 / DISH Network Corporation Waiver Memorandum Opinion and Order, FCC, Dec 20, 2013 []
  3. Dish Network Management Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, Feb 21, 2014 [] []
  4. Dish Folds Its Hand On Sprint But Ups The Ante For Clearwire, Trefis, June 19, 2013 []
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