Why Dish Network Needs To Roll Out Services For Its Spectrum Holdings

by Trefis Team
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In March this year, Dish Network (NASDAQ:DISH) raised $1 billion in debt to finance wireless and spectrum-related strategic transactions. In July, reports surfaced that Dish Network and Amazon could partner to set up a narrow band (NB) Internet of Things (IoT) network.  While Dish has remained tight-lipped about any possible partnerships, the company believes that its plan to launch an NB-IoT network over 5G will enable it to meet the FCC’s build-out requirements, which mandates that it must reach a 70% buildout by March 2020 for its spectrum. In this note, we size up the IoT opportunity and why monetization of the spectrum is important for Dish.

Our price estimate of $54 for Dish Network is marginally higher than the current market price.

See our complete analysis of Dish Network here

Sizing Up The IoT Opportunity

The IoT space is growing rapidly as smart devices gain popularity. According to marketsandmarkets, IoT could grow to a $561 billion market by 2022McKinsey Global Institute estimates that the impact of IoT on the global economy can be as high as $6.2 trillion by 2025. The installed base for IoT devices is estimated to grow from around 10 billion connected devices today to as many as 30 billion devices (or 50 per some estimates) by 2020.

Two Step Strategy For Spectrum Deployment

Dish has invested over $21 billion in spectrum over the past few years, and is the fifth-largest holder of wireless spectrum in the United States. At the most recently concluded spectrum auction in April, Dish bought 600 Mhz spectrum worth $6.2 billion.

The company has taken its first steps towards monetizing its spectrum. In the first phase, the company will construct a low power narrow-band (NB-IoT) network, which will be deployed on 700 Mhz and AWS-4 spectrum. It has recently finalized contracts with multiple global vendors for radio access equipment and other associated equipment for towers. It is also in talks with chipset and module vendors to supply it with electronic equipment for towers. The company plans to wrap up negotiations by early 2018 and deploy towers later in 2018. This technology is likely to be put to commercial use by 2020, and should help the company to meet FCC requirements.

The company has stated that the first phase will serve as a “testbed” for a Phase 2 deployment beyond 2020, when it will deploy the 600Mhz spectrum once the 5G communication specifications are set.

Why Is Spectrum Monetization Important For Dish?

FCC rules stipulate that the Dish must achieve 70% signal coverage on the AWS-4 and 700 MHz E-Block licenses by March 2020. The company needs to monetize its spectrum holdings or risk losing the licenses for the spectrum. This would significantly impact its financial position, as the company had financed a part of the fees for various licenses through debt.  By monetizing its spectrum, the company will not only be able to retain the licenses to the spectrum, but money from the new IoT services can also be used to service its debt. If the company can capture 1% of the IoT market either through leasing its spectrum to large customers or rolling out IoT services on its own, it could potentially add over $5 billion in annual revenue. It could then use this money to either fund the expansion of its spectrum services or inorganically grow its content and broadcasting service.

Furthermore, as IoT services gain traction in the future, the company can venture into big data analytics and ancillary services, as connected devices will generate data that is high in quantity, quality, and sensitivity. According to an Oracle study, IoT will account for 4.4 trillion gigabytes of data by 2020. As IoT finds widespread use across functions such as transportation and manufacturing, Dish can also diversify its business and risk by offering services across these functions, thus limiting its reliance on the cable-TV business, which is seeing competitive pressure.

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