The Year 2014 In Review: Dish Amasses More Spectrum

Dish Network (NASDAQ:DISH) saw a significant activity in 2014 as it swept the H-Block spectrum and has also bid in the recent AWS-3 spectrum auction. On pay-TV front, the company saw around 6% revenue growth during the first nine months of 2014. This growth was led by higher ARPU, which grew 4% while the subscriber base remained closer to 14 million, during the same period. ^[1]

The company has been in limelight primarily due to the disputes with various content owners including, Time Warner (NYSE: TWX), CBS (NYSE:CBS) and 21st Century Fox (NASDAQ:FOX). The company is currently in a dispute with Fox News over the carriage agreement and the network has been blacked out for Dish’s subscribers since December 21. While Dish’s arguments in such disputes are justified over the steep price increases by the content owners, the high demand for their programming puts the content owners at upper hand. On that note, we discuss below the developments around Dish Network in 2014.

We estimate revenues of around $14.50 billion for Dish Network in 2014, with EPS of $1.76, which is in line with the market consensus of $1.52-$1.85, compiled by Thomson Reuters. We currently have a $67 price estimate for Dish Network, which is at around 5% discount to the current market price of $73.

See our complete analysis for D ish Network

Dish Acquires More Spectrum In 2014

Earlier in March 2014, Dish won the bidding for wireless broadband frequencies in all 176 U.S. markets auctioned by the Federal Communications Commission (FCC). 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 raised money for the licenses to fund a nationwide wireless communications network for emergency responders, Dish secured another 10 megahertz of spectrum, taking its total spectrum holding to 56 megahertz. 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. ^[2]

The satellite provider has been aggressively acquiring wireless spectrum for a while in order to enter the wireless space. Recently, it participated in the AWS-3 spectrum auction, which is surely turning out to be massive success for the FCC. The auction topped $44.5 billion as of round 134 on December 23. The auction is currently in holiday period and will resume on January 5. ^[3] It has more than quadrupled the reserve bid so far and is now the largest spectrum auction since 2008 auction of 700 MHz spectrum. It must be noted that AWS-3 is a mid-band spectrum with qualities of both, low band and high band spectrum, which can help wireless carriers provide better connectivity. We are eager to see how this auction unfolds in the coming weeks and how it shapes the U.S. wireless industry at large.

In the meantime, Dish’s stock price has moved up 15% since beginning of November, primarily due to the continued growth in the auction bidding. Dish currently holds similar spectrum, the value of which is increasing with the rising bids for the current auction. According to some of the analysts at the street, post the recent AWS-3 spectrum auction, Dish’s spectrum value could be as high as $2.20 per MHz-pop. ^[4] We currently estimate its value to be around $1.73 per MHz-pop and a $2.20 price tag will translate into post-tax spectrum valuation of $20 billion. This will have a significant impact on the stock price, which will then be worth $77 (close to 15% ahead of our current price estimate of $67), according to our estimates.

Dish’s Feud With Content Providers

Dish has blocked 10 channels over the last six months amid carriage disputes with the content owners. The company blocked Turner’s CNN, Cartoon Network and 6 other networks on October 21st. However, the channels were restored on November 21. The contract between the two companies ended in June and got multiple extensions but the talks failed over the issue of time distance between smaller and larger networks. Dish wanted to maintain the time distance while Turner wanted it to be closer. However, the new deal will allow Dish to carry all Turner networks (including TNT and TBS) through the end of March, giving them more time to negotiate. ^[5]

Earlier this month, CBS pulled its content from Dish after both the sides failed to reach an agreement. However, after 12 hours of blackout, services were restored as the companies inked a new deal to end all the litigation, but Dish paid a high price by disabling some ad skipping features on its popular AutoHop DVRs. ^[6]

Recently, Dish blocked Fox News, which is the top news channel in the U.S. Fox News continues for a second week to be blacked out for Dish’s subscribers. The channel was blacked out in early hours of December 21. Dish has stated that Fox is seeking a new deal for an unrelated channel that would have tripled the rates paid by Dish for that channel. While it is unknown what channel Dish is talking about, it could well be either FXX or Fox Sports 1, both of which were recently launched by Fox.

It must be noted that Fox News is not only the top news channel in the U.S., it was also the most watched cable network in prime time in Q3 2014, beating popular networks such as ESPN, USA and TNT. If Dish fails to reach a pact with Fox, it could lead to higher churn rate for the quarter as some of the subscribers will vent out the frustration by switching to some other pay-TV operator. Fox News is an immensely popular channel with a loyal audience, which is unlikely to shift to other news networks. Fox has already received around 180,000 complaint calls and over 140,000 emails over the recent dispute with Dish Network. ^[7] It will be interesting to see how this story unfolds in the coming days and if both the companies manage to reach a pact or not.

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1. Dish Network’s SEC Filings [↩]
2. Dish Network Sweeps H-Block Spectrum Auction For $1.56 Billion, Trefis, Mar 4, 2014 [↩]
3. AWS-3 Cruises Into Holiday Break, Multichannel, Dec 23, 2014 [↩]
4. Analysts: Market is undervaluing Dish’s spectrum holdings, Fierce Wireless, Dec 22, 2014 [↩]
5. Dish Eases Standoff with Turner, Restores CNN, Cartoon Network, Variety, Nov 21, 2014 [↩]
6. CBS Returns to Dish After 12-Hour Blackout, CNET, Dec 6, 2014 [↩]
7. Fox News Fans Fight Back After Dish Blackout Enters Second Week, MediaITE, Dec 29, 2014 [↩]