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Investment Overview for Dish Network (NASDAQ:DISH)

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1. Dish Set To Enter 5G Wireless Market

Dish Networks finally announced plans of entering the U.S. wireless market. In late July, the company reached a deal with Sprint and T-Mobile (which are set to merge) to acquire Sprint’s prepaid businesses along with a portion of Sprint’s 800 MHz spectrum. The company will also gain full access to the merged entity's (New T-Mobile) wireless network for seven years, as it builds out its own wireless infrastructure. The company will leverage this deal, as well as its deep portfolio of wireless spectrum to become the 4th U.S. wireless carrier. The company expects to reach 70% of the US population with 5G by the year 2023.

2. Latest Earnings

Dish Network beat consensus estimates on revenue as well as earnings in Q3 2019. Revenues decline 6.7% year-on-year and the company reported earnings of $0.66 per share. DISH ended the quarter with 9.494 million DISH TV subscribers, down 7.7%, and 2.686 million Sling TV subscribers, up 13.3%. Total Pay-TV subscribers were 12.180 million, down 3.8% year over year. However, Pay-TV average revenue per user (ARPU) edged down 1.2% y-o-y to $85.29. Additionally, the churn rate was 1.69% compared with 2.11% in Q3 2018. Earnings of $0.66/share was lower than $0.82 in the year-ago period due to significantly higher subscriber acquisition costs, which increased 52.9%, primarily due to a rise in advertising, installation costs per activation, and hardware costs.

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Below are key drivers of Dish Network's value that present opportunities for upside or downside to the current Trefis price estimate for Dish Network:

Satellite TV

• Fee per Satellite TV Subscriber: We estimate this figure will increase from about $91 in 2018 to about $92.4 by the end of our forecast period. However, there could be an upside of around 5% to our price estimate if this fee were to rise to $105 instead. This could be possible if programming costs rise too much, making it unfeasible for Dish to absorb them, and then passes on a significant portion of these costs to the end consumers.
• Dish Network Pay-TV Market Share: We estimate this figure to be around 11.5% by the end of our forecast period, as compared to 14.8% in 2018. However, there could be about 5% upside to our price estimate if Dish Network can lift its market share to 12.5% by end of our forecast period. On the other hand, if this figure were to decline to 9.5%, there could be downside of more than 5% to our price estimate.
• Dish Network Gross Profit Margin: We estimate that Dish Network's gross margins will go down from 34.5% in 2018 to around 28% by the end of our forecast period. There could be an upside of more than 5% to our price estimate if Dish can get back to 42% gross margin levels seen in the late 2000's, by continuing to focus on a quality subscriber base and increasing its prices.

For additional details, select a driver above or select a division from the interactive Trefis split for Dish Network at the top of the page.

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Dish Network is the third largest pay-TV provider in the U.S., after Comcast and AT&T-DirecTV. The pay TV market includes cable providers such as Time Warner Cable, Comcast, and Cablevision, satellite providers such as AT&T-owned DirecTV and Dish Network, and telecom providers such as AT&T and Verizon, that offer fiber optic TV services. More than 85% of the TV households in the US subscribe to Pay TV services. Dish is the second-largest satellite TV provider in the U.S. after DirecTV.

Dish makes money by charging digital TV subscription fees to customers, selling digital TV boxes, selling premium services like HD and DVR, and by charging advertisers to advertise on some of the channels it carries.

Dish Network acquired DBSD North America and TerreStar in 2011. These were strategic investments by Dish in which the company got access to valuable AWS-4 spectrum that could help it in building a wireless network. Dish also made a successful bid for H-Block spectrum in 2014 and AWS-3 spectrum in 2015, taking its total spectrum holdings to 81 MHz.It acquired 486 spectrum licenses in 600 Mhz bands for $6.2 billion in 2017. Dish is currently the fifth largest holder of wireless spectrum in the U.S. and the pre-tax value of its spectrum is around $25 billion, according to our estimates.

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The majority of Dish's value comes from its spectrum holdings and its core satellite TV service. Although the company offers customers additional services like HD and DVR service, the value contribution of these services to Dish's overall value remains limited due to the lower fees charged for these services, and the limited number of Dish customers that opt-in for these additions.

Appreciation in Dish's spectrum holdings

Dish has made significant investments in spectrum over the past few years and is now the fifth largest holder of wireless spectrum in the United States. The company has spent a combined sum of $16.8 billion in acquiring its spectrum. The value of spectrum in the U.S. has increased with time due to its growing demand in the wireless industry. This demand can be gauged from the AWS-3 auction conducted by the FCC in early 2015. The auction raised a total of $44.9 billion by auctioning 65 MHz of spectrum. In 2016-2017, the FCC offered more spectrum in the 600 Mhz band through a reverse auction 1000. Dish currently owns licenses to more than 80 MHz of spectrum and we estimate the pre-tax fair value of Dish’s spectrum holdings to be around $25 billion.

High Fees for Satellite Service

The Fee per Satellite TV Subscriber for Dish's core offering was about $91 per month in 2018.

Number of subscribers set to declline

At the end of 2017, Dish had about 14.1% market share in the US Pay TV market, representing around 13.2 million subscribers. We expect Dish's market share to increase slightly throughout our forecast period. However, as many households are cutting chords, the viewers using cable service will decline in the coming years.

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Dish's strategy of acquiring wireless spectrum, bundling of services (TV, internet, phone), and increased competition from telcos (AT&T, Verizon) are the primary trends impacting Dish.

Dish's strategy of amassing spectrum

There is a looming spectrum crunch in the U.S. wireless industry given the increasing data needs of mobile customers. Realizing this spectrum crunch and the associated opportunity, Dish Network has been strategically amassing spectrum. The company currently has more than 80 MHz of spectrum holdings including 40 MHz of AWS-4 spectrum, 10 MHz of H Block PCS spectrum, 20 MHz of AWS-3 spectrum and 24 Mhz of the 600 Mhz spectrum.

The AWS spectrum supports LTE and can be used by wireless phones and other mobile devices for voice, messaging, and data services. Most smartphones are AWS-enabled and can communicate using this spectrum. The H Block spectrum band is adjacent to and can be paired with, Dish's AWS-4 licenses, which is highly desirable. Another desirable aspect is that the AWS-4 and H Block spectrum cover every territory in the United States. Dish can now move forward with a number of options such as launching its own nationwide wireless network, partnering with an existing wireless carrier, or leasing/selling the spectrum.

Competition rather than Cooperation with Telcos (e.g. AT&T and Verizon)

Before AT&T's U-verse and Verizon's FiOS fiber optic TV services were launched, telcos and satellite providers would team up to provide bundled TV, Internet, and phone services to compete with triple play offerings from cable operators like Comcast and Time Warner Cable. However, telcos now compete with satellite providers in certain areas, and the level of competition will continue to increase as telcos continue to roll out their TV services.

Fiber-based providers represent one of the fastest-growing sectors in the Pay TV market

Several large telcos have upgraded old copper wire lines with fiber optic lines in their markets. The fiber optic lines provide high capacity bandwidth, enabling these companies to offer increased HD content, and the ability to bundle services.

Alternative platform threat

Dish Network, in particular, and pay-TV service providers, in general, face a threat from emerging online video platforms such as Netflix and Hulu. Although these platforms mostly provide content that is not running live on TV, they are now slowly penetrating into the pay-TV provider's core turf. Netflix's successful entry into original programming with the success of its shows, such as House of Cards, Orange is the New Black and Daredevil, is an example.

Content owners demanding more money

Dish Network has engaged in conflicts with content owners in the past over the issue of their demand for higher carriage fees. We believe Dish Network's periodic price rise is a response to cope with such demands, so that channel interruption does not occur. Dish blocked several channels in 2017 amid carriage disputes.

How Does Trefis Modelling Work?

How do we get the historical numbers for this chart?

Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.

Who came up with the Trefis forecast for future years?

The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.

How does my dragging the trendline on the chart impact the stock price?

1. We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
2. We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.

See more on: DCF Methodology

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