Analysts: Verizon, AT&T should purchase Dish Networks' spectrum

Dish Network (NASDAQ: DISH) executives were predictably opaque during Wednesday's earnings call regarding the company's plans to leverage its spectrum assets. So analysts continue to speculate about what the spectrum is worth, who might eventually use it and how.

Dish has spent billions acquiring spectrum over the last few years, and it has applied to participate in the upcoming incentive auction of 600 MHz spectrum. But the company has yet to begin building out any kind of wireless network despite being on the clock -- FCC mandates require spectrum license-holders to use the airwaves within a particular time frame -- and it hasn't struck any notable deals with mobile carriers to leverage its spectrum.

Executives said Wednesday that the company is considering deploying either fixed-line or mobile services on its airwaves, and noted demand for next-generation offerings such as connected cars and on-the-go video. But they didn't disclose any specific strategies for getting there, adding that multiple technologies and business models will be necessary to provide such services.

"Again, we're being cautious about discussing spectrum and industry structure and so forth," Dish Executive Vice President Tom Cullen said during the call, according to a Seeking Alpha transcript. "But a couple comments, one, I think, given the consumption trends on wireless devices and the proliferation of video, most people in the industry believe you are going to have to really throw every resource you have at solving the problem in the long run. So there is going to be a role for certainly in the mid-band capacity spectrum that we have but there are also roles for continued densification."

And CEO Charlie Ergen cited AT&T's (NYSE: T) plans to capitalize on its acquisition of DirecTV by offering a three-tiered video service across platforms. That offering, which is slated to launch in the fourth quarter, will include one option targeted directly at mobile viewers.

"I think what AT&T is doing is logical," Ergen said. "I think what they are doing will advance the industry. And I think that Dish thought about it five years before they did. I think we're well-positioned to compete against whatever it is they come up with."

Meanwhile, the value of Dish's spectrum seems to be on the wane. Dish is highly unlikely to make any significant moves with the spectrum until the incentive auction ends, but the airwaves should be compelling for service providers in need of additional spectrum, analysts at New Street Research observed this week.

"Our Dish thesis rests on spectrum value; we are waiting for a catalyzing event; we don't expect one while the industry is operating under the incentive auction quiet period," the analysts wrote. "Quite simply, Verizon and AT&T can't retain the share of industry revenue they have today without Dish's spectrum; they will either purchase the spectrum or relinquish revenue to whomever deploys it. The spectrum should be revalued either way.

"The opportunity seems awfully compelling: Dish's mid-band spectrum portfolio is trading at 83 cents/MHz/POP, which is almost 70 percent below the price the carriers paid in the AWS-3 auction of $2.66/MHz/POP," New Street continued. "Spectrum hasn't traded this low since the VZ/SpectrumCo deal in 2011 and even at the time that seemed like a steal."

For more:
- see this Seeking Alpha transcript

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