Weekly Pay-TV Notes: Dish, TWC-Charter Merger In Focus

September 18th, 2015 by Trefis Team
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The pay-TV industry saw significant activity this week, with the FCC recently issuing an order which granted Dish Network additional time to come up with the payment related to its cancelled $3.3 billion AWS-3 auction discount. On a separate note, the FCC started its 180-day timetable on the review of the proposed Charter-Time Warner Cable merger on September 11. The commission’s review is the most important one, but Time Warner Cable and Charter will also need to seek approval from New York and other affected states. Below we discuss these developments over the past few days.

FCC Gives Dish More Time To Pay Back Cancelled $3.3 Billion Spectrum Discount

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The FCC recently issued an order which granted Dish Network (NASDAQ:DISH) additional time to come up with the payment related to the the now-cancelled $3.3 billion AWS-3 auction discount. [1] According to the order, Dish has until October 1 to submit the payment or an irrevocable letter of credit. If Dish chooses to submit a letter of credit, they will be ultimately required to make the full payment by December 16. The FCC had earlier decided to cancel the $3.3 billion discount that Dish received during Auction 97. [2] The commission ruled that Dish’s bidding entities were not eligible for the discount under the small business bidding credit rule. The issue of the discount received by Dish first came to light after the results for FCC’s AWS-3 Auction were announced. Dish spent close to $10 billion at the auction but also received a discount of approximately $3.3 billion as it bid through small partners Northstar and SNR. [3]

The cancellation of the AWS-3 discount is a severe setback for Dish. CEO Charlie Ergen stated on the latest earnings call that such a cancellation might derail the company’s future plans. [4] We believe that incurring an additional liability of this magnitude could stall future M&A activity and cripple Dish’s plans to bid for spectrum at future auctions. (Related – Why We Are Revising Dish Network’s Price Estimate To $74)

Dish Network’s stock gained around 5.8% over the week through Thursday. We currently have a price estimate of $74 for Dish Network. For the year 2015, we estimate revenues of $15.1 billion, in line with the consensus estimate, and EPS of $2.11, compared to a consensus estimate of $2.19.

FCC Starts Clock On TWC-Charter Merger

The FCC started its 180-day clock on the proposed Charter-Time Warner Cable (NYSE:TWC) merger on September 11. [5] The clock is essentially a non-binding 180-day countdown by the end of which the commission hopes to conclude its review of the merger. The FCC last week approved the protective orders and associated framework for treating sensitive information related to the review of the deal, which had freed the commission to start the shot clock and open a comment window on the deal. [6] October 13 has been set as the deadline by which the initial comments need to be submitted to the FCC. The FCC review is the most important one, but Time Warner Cable and Charter will also need to seek approval from New York and other affected states.

Time Warner Cable’s stock gained around 1.6% over the week through Thursday. We currently have a price estimate of $198 for Time Warner Cable. For the year 2015, we estimate revenues of $23.7 billion, in line with the consensus estimate, and EPS of $6.86, compared to a consensus estimate of $6.58.

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Notes:
  1. Order granting extension requests, September 17, 2015, fcc.gov [↩]
  2. FCC Votes to Deny $3.3 Billion in Discounts Sought by Dish Network, August 17, 2015, Wall Street Journal [↩]
  3. AWS-3 AUCTION RESULTS: AT&T leads with $18.2B, Verizon at $10.4B, Dish at $10B and T-Mobile at $1.8B, January 30, 2015, Fierce Wireless [↩]
  4. DISH Network (DISH) Charles William Ergen on Q2 2015 Results – Earnings Call Transcript, August 5, 2015, Seeking Alpha [↩]
  5. FCC starts 180-day countdown to review Charter-Time Warner Cable merger, September 11, 2015, Reuters [↩]
  6. FCC Approves Charter-TWC Protective Orders, September 2, 2015, Multichannel News [↩]