New Assets and FCC Proposal Bolster DISH’s Position in Complementary Markets
In comparison to many other telecom players, satellite old-timer DISH Network Corporation (DISH) has had a pretty good month. First, DISH completed its $3b acquisition of DBSD North America, Inc. (DBSD) and TerreStar Networks, Inc. (TerraStar), which will poise DISH to become a formidable player in the wireless video marketplace with 40 MHz of nationwide spectrum in the 2 GHz vicinity from the deal. Then, on March 21, 2012, the FCC released an NPRM to ponder the important decision of removing regulatory barriers for mobile broadband networks in the 2 GHz band—specifically blocks 2000-2020 MHz and 2180-2200 MHz, which the FCC is calling “AWS-4.” The NPRM explains, “These proposed rules are designed to provide for flexible use of this spectrum, to encourage innovation and investment in mobile broadband, and to provide a stable regulatory environment in which broadband deployment could happen.”
With those favorable conditions in place, what will DISH do with its newly-acquired 2 GHz spectrum? Considering that satellite companies—even the fierce video competitors—have never really been able to achieve solid footing in the broadband market due to a plethora of technical limitations, DISH could finally be in a position to change the status quo. DISH could also be in a position to make a lot of money by selling all of its wireless assets, which some analysts have speculated would be quite attractive for a company like AT&T. A year ago when DISH announced its intentions to acquire DBSD, JSICA commented that DISH’s options included rolling out a mobile video service or a LightSquared-esque wholesale network; and “Either way, it’s sure to be interesting!” Indeed, it will be interesting and exciting to see which strategy DISH chooses (The Deal Advisor: Dish Network Gets Bankruptcy Court Approval for DBSD Buy).
Satellite video providers like DISH are in a market position that is both advantageous and troubling. On one hand, DISH has nearly 14m satellite TV customers nationwide and recently boosted its OTT and mail-based video offerings after taking over Blockbuster. Interestingly, DISH scooped up Blockbuster, DBSD, and TerreStar when they were in bankruptcy—illustrating that DISH has a keen eye for bargains, especially bargains that can be used to give DISH a competitive advantage or a toe-hold in new markets after some clean-up and investment. DISH can leverage its entrenched subscriber base and its new assets to expand into complementary markets, which certainly puts DISH in a prime position.
However, DISH faces increasing competitive pressure from terrestrial wireless and wireline players, and in this market companies who do not provide triple- or quad-play risk losing customers at a rapid pace. Yahoo! Finance reported on March 14 that “The growing popularity of triple-play services among cable and telecom subscribers, which DISH lacks in its portfolio, has increased customer churn for the company.”
Even with DISH’s new assets, FCC approval, and loosening of other regulatory barriers, DISH’s planned terrestrial-satellite hybrid wireless broadband network won’t be built overnight. The Denver Post reported that DISH “estimates that building a new network could cost $5b and take three years or longer, though a joint project with a wireless carrier could significantly trim both.” DISH will have to carefully evaluate its churn rate versus the time it will take to offer broadband services when it decides whether to deploy or sell its wireless assets.
If all goes well at the FCC, DISH could become a real threat to rural carriers, especially since DISH already has video customers in many rural areas that are beyond the reach of cable systems. The Denver Post also notes, “If it is successful in launching a wireless broadband network, DISH would be the only nationwide pay-TV provider with such an asset. The network could be a game changer as consumers’ video-viewing habits shift from the TV set to the smartphone and tablets, which often require mobile Internet connections. For years, DISH has been shorthanded in its battle with cable-TV competitors because it doesn’t operate a wired broadband network.” The bottom line here is that rural independent cable and wireline providers might want to keep a close eye on DISH’s competitive strategy.
Although DISH’s wireless network plans are technically similar to those of troubled LightSquared, DISH’s 700 MHz and 2 GHz spectrum assets will not cause the interference crisis with the GPS industry that led to LightSquared’s plans being crushed by the FCC. The regulatory issue challenging DISH is that the FCC needs to actually approve new rules “that allow airwaves now used by satellites to be approved for high-traffic ground-based networks,” according to Bloomberg. The FCC recently denied a DISH request for a waiver of rules that require mobile handsets operating on Mobile Satellite Service (MSS) spectrum to be compatible with satellite and terrestrial signals—this would make the lucrative smartphone and tablet market expensive and burdensome for DISH, contrary to its strategic goals. However, the FCC’s March 21 NPRM could lead to a rulemaking where MSS licensees would have considerable flexibility in their network and technology deployment.
DISH is clearly hoping for a flexible and accommodating regulatory environment. ISI Group analyst Vijay Jayant explained to Bloomberg that “If the government sets rules that limit how DISH can use the spectrum, [DISH chairman] Charlie Ergen may choose to hoard it, which would be antithetical to the government’s mission of promoting wireless competition. ‘DISH isn’t a patsy for the government,’ Jayant said. ‘DISH’s attitude is, ‘Make the rules fair and we’ll do the right thing. Make them unfair and we’ll sit on the spectrum,’ and it will be another black eye for the government.’”
The combination of competitive, regulatory, and strategic forces at play in DISH’s acquisition of DBSD and TerreStar certainly make for an interesting state of affairs in the satellite and mobile broadband markets—but as mentioned above, independent wireline and cable service providers might feel a pinch if DISH’s strategic vision is achieved quickly and smoothly. DISH is definitely not content with being just a video provider—it wants to take on the broadband market, too.
Wednesday, April 11, 2012 at 10:51AM 