Dish Q3 Preview: Spectrum Strategy In Focus, Sling TV Will Help Mitigate Subscriber Losses
Dish Network (NASDAQ:DISH) will report its third quarter results on Monday, November 9. [1] We are looking forward to hearing from management on their future spectrum plans in light of the cancellation of the $3.3 billion spectrum discount by the FCC. The company relinquished $3.4 billion worth of its AWS-3 spectrum to the FCC following the cancellation. Dish has also been in talks with Verizon about leasing out its spectrum, which would help Dish in monetizing its unused spectrum and will also result in some much-needed cash flows. Additionally, we expect the company’s pay-TV subscriber base to continue to shrink in the near term. However, the growth in Dish’s streaming service Sling TV will help in mitigating the losses in the company’s subscriber base.
Our price estimate for Dish stands at $71, implying a premium of more than 10% to the market.
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Watching For Updates On Dish’s Spectrum Strategy
We will be looking for updates on how Dish plans to monetize its spectrum holdings. The company has been in discussions with T-Mobile (NYSE:TMUS) about a possible acquisition but the FCC’s cancellation of Dish’s $3.3 billion AWS-3 spectrum discount threw a wrench in those plans. Dish CEO Charlie Ergen stated on the last earnings call that the discount cancellation complicated the T-Mobile deal and also cautioned that the liability could complicate any other future M&A plans. [2] Dish subsequently decided to relinquish $3.4 billion worth of its AWS-3 spectrum to the FCC. [3] Dish’s finances are severely strained, as it dished out $8.7 billion in AWS-3 FCC license deposits earlier in the year and has around $14 billion of debt on its balance sheet. [4]
As teaming up with a carrier to provide its own wireless service looks unlikely for Dish at the moment, the company could look to sell or lease its spectrum. Verizon CEO Lowell McAdam claimed last month that the telecom giant has had talks with Dish about monetizing Dish’s spectrum holdings. [5] Dish could also receive wireless capacity from Verizon, which could enable the satellite-TV provider to operate as a mobile virtual network operator (MVNO) and bundle Verizon’s services with its pay-TV packages.
Sling TV Will Help Mitigate Subscriber Losses
The past several years have been tough for pay-TV companies in the U.S. as they experienced significant challenges in retaining subscribers. The growing availability of online content on alternative video platforms such as Netflix (NASDAQ:NFLX), Hulu, Sling TV and HBO Go has been an issue for the pay-TV industry. Before 2014, Dish had managed to maintain its pay-TV subscriber base despite a slowdown in the overall pay-TV industry. This was because satellite-TV providers were able to gain subscribers in rural areas, as cable operators found it difficult to provide services in such areas due to infrastructure problems. However, the industry decline has finally caught up to Dish, and the company has consistently lost subscribers since Q1 2014. A lack of bundling options has also hurt the company. Cable companies such as Comcast (NASDAQ:CMCSA) have been effectively offsetting their video subscriber declines by selling high-speed internet services, but satellite-TV providers have not been able to follow suit because of speed constraints in satellite-based internet. Dish’s satellite-TV rival DirecTV merged with AT&T, which allowed it to offer bundled services, but Dish has no such merger partner as of now.
We believe that Dish will continue losing subscribers on a regular basis in the coming years. However, the company’s streaming service Sling TV should help in stemming the rate of decline in its subscriber base. Dish started including subscriber metrics for Sling TV in its reported pay-TV numbers from Q2 2015. Dish’s management believes that Sling TV is well poised to benefit as consumers increasingly shift to alternative platforms in order to consume content. Management has previously stated that the company’s immediate goal is to keep the service attractively priced in order to gain more subscribers. [6] Offering Sling TV at competitive pricing will enable Dish to gain streaming subscribers and compensate for the reduction in its traditional subscriber base. Accordingly, we believe that Dish will continue to lose pay-TV subscribers in the near term, albeit at a slower pace.
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More Trefis Research
- DISH Announces Conference Call for Third Quarter 2015 Financial Results, Dish Network Press Release [↩]
- DISH Network (DISH) Charles William Ergen on Q2 2015 Results – Earnings Call Transcript, August 5, 2015, Seeking Alpha [↩]
- DISH Statement on AWS-3 Spectrum, October 01, 2015, Business Wire [↩]
- Dish Network’s SEC Fillings [↩]
- What Telecom CEOs Are Saying: Highlights from Goldman Sachs Conference, September 18, 2015, Wall Street Journal [↩]
- Dish Network’s (DISH) CEO Charlie Ergen on Q1 2015 Results – Earnings Call Transcript, May 11, 2015, Seeking Alpha [↩]