Dish’s Q4 Earnings Preview: The H-Block Auction And Pay-TV Subscriber Trends In Focus

Dish Network (NASDAQ:DISH) will report its Q4 2013 results on February 21. Earlier, in Q3 2013, Dish delivered impressive results driven by the pay-TV subscriber gains and higher ARPU. The promotional schemes such as a free iPad offer seems to have attracted more customers for the satellite company. According to our estimates, pay-TV contributes close to 70% to Dish’s value. The company reported a gain of 35,000 pay-TV subscribers in the third quarter compared to the loss of 19,000 during the prior year period. ^[1] The pay-TV industry is witnessing a decline in subscribers, especially from cable operators. In a saturated market, loss of subscribers to one, may translate into gain for the other. It will be interesting to see if Dish manages to add more subscribers in the quarter after Comcast (NASDAQ:CMCSA) posted modest gains for the first time since 2007 (See – NBCUniversal Drives Comcast’s Q4 Earnings).

The bigger buzz with Dish will obviously be around its wireless plans and ongoing H- Block auction. We will look for any updates on the same. Dish earlier dropped its plan to acquire the troubled LightSquared Inc.

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Dish’s Interest In The 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, 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 analogue frequencies Dish bought in 2008.

The H-Block auction started last month and as of February 18 (after 87 rounds), the Federal Communications Commission (FCC) was only $100 million short in bids to reach its aggregate floor price of $1.65 billion, but the auction won’t end until there are no more bids or withdrawals or waivers. ^[2]

Dish’s Wireless Plans

Dish 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. Both acquisitions, valued at $2.9 billion, were a 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. Overall, Dish has spent nearly $4 billion on such acquisitions since 2007. ^[1] The spectrum is of great importance with some reports suggesting the value of Dish’s spectrum could be more than $12 billion. ^[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 rise of alternative video platforms is adding to the woes for pay-TV operators. In such a scenario, wireless could fuel the future growth for Dish.

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1. Dish Network’s SEC Filings [↩] [↩]
2. H Block Update: Within $100 Million of Floor Price, Broadcasting Cable, Feb 18, 2014 [↩]
3. Dish Acts to Boost Value of Spectrum, The Wall Street Journal, Sep 13, 2013 [↩]