Dish’s risk lies with the network—analyst

A lot of folks are waiting to hear more about Dish Network’s wireless network buildout strategy. After all, it’s teed up to serve as the nation’s fourth facilities-based nationwide carrier, replacing Sprint.

First, it needs to build that network, and while it has hired wireless talent and announced its first vendor in Mavenir, analysts are waiting for the company’s next quarterly conference call to hear about more promised details. In the meantime, analysts like those at New Street Research say they’re fielding more questions about Dish than anything else in the past few weeks.

According to New Street’s Jonathan Chaplin, investors ask the same three questions in order of perceived importance: 1) Who are the customers; 2) where will the capital to build the network come from; and 3) how will they build the network?

“These are the right questions, but in the wrong order. The first two things that investors are most focused on are far less important than the third,” Chaplin said in a note for investors on Monday.

During the trial last year where states challenged the government’s conditional approval of the T-Mobile/Sprint merger, it was suggested that a “mystery partner” was waiting in the wings. Speculation rose it could be Amazon or Google.

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Chaplin said he and his colleagues have no idea who Dish’s anchor tenant will be—and it doesn’t matter much. “If they sell capacity at $0.50/GB in a market where the retail price per GB is $5, they will fill the network. If GBs are increasingly a commodity, demand will flow to the cheapest source of GBs first, and the cheapest source will be Dish,” he wrote.

Investors also ask whether the partner is someone or something like cable, America Movil or Facebook. New Street expects most, if not all, of the companies mentioned to become customers of Dish’s network in due course. “It doesn’t matter which is first,” Chaplin wrote. Dish co-founder and Chairman Charlie Ergen will partner at the outset with the company(s) that brings the greatest value to Dish and its equity holders, he added.

The analysts believe Dish has access to the capital it needs. The network is where “all the risk lies,” he said. “If Dish fails, it will be because they failed to build a competitive network.”

Building a network is hard because there is no margin for error. “The value of the network is binary: if it is as good as Verizon’s it is very valuable; if it is not quite that good, it is worthless (I am only exaggerating a little),” Chaplin wrote. “By way of example, Sprint’s network is worthless. They can’t hang onto subs even with prices that are half of Verizon’s. Sprint’s network is functionally as good as Verizon’s 98% of the time. The 2% of the time that it is worse than Verizon’s defines the difference between ‘very valuable’ and ‘worthless.’”

Of course, Dish will need a credible network deployment plan, and it will need credible partners to help execute the plan. Japan’s Rakuten has demonstrated how challenging it can be to launch a greenfield 5G network, Chaplin noted. “It is particularly challenging for a company that has never built or operated a wireless network before. Dish’s ability to meet the challenge will depend in large part on the vendors and others that Dish partners with to build the network, and how competently Dish manages them,” he said.

The world should know the details of Dish’s plan and its network partners are this summer. “This may be the most important catalyst for Dish, and for the wireless industry more broadly,” he said.

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Chaplin's colleague, New Street policy analyst Blair Levin, in a June 7 note for investors said that over the last decade, no company has generated more questions from investors, on both the market side and the policy side, than Dish.

“For various reasons, it has been involved in a number of controversial policy issues where the outcomes are uncertain,” Levin wrote, addressing several of investors’ questions, including how disputes between Dish and T-Mobile will be reviewed by Ted Ullyot, former general counsel of Facebook, who was appointed Monitoring Trustee, providing recommendations for the Department of Justice.