Dish Anxious to Join Mobile Wireless War – Is this a Turning Point?
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Dish Network (NASDAQ: DISH) is nothing if not bold. They purchased Blockbuster Inc. in bankruptcy for $228 million last year and now they’re making rumblings about building their own wireless network. The Blockbuster play was clever, providing 1,500 stores and a new way to market its services. Dish has used its Blockbuster assets successfully and as of this most recent quarter has stopped hemorrhaging subscribers. Dish started offering a streaming and DVD movie rental service to its subscribers in October and credits the service for reversing its trend of declining subscribers. In their earnings call Thursday, Dish Chairman Charlie Ergen explained the company needs wireless to remain competitive with the other content providers and stressed that fixed video alone is a significant disadvantage. From my perspective wireless seems like a big risk, but it is clear that Dish needs to continue to innovate to stay afloat.
Dish’s earnings were strong, up 24% on the aforementioned reversal of subscriber losses. The company added 22,000 net subscribers for the quarter, a stark contrast from the 111,000 net subscribers lost in the third quarter. Revenue also grew 13% to $3.63 billion, marking the fourth consecutive quarterly revenue growth for the company. This echoes the results earlier this month from competitor DirecTV (NASDAQ: DTV), which posted a 16% profit increase. DirecTV differs from Dish in that it has a sizable presence outside of the US and its revenue growth was driven in part by significant gains in Latin America. The company also gained 125,000 net US customers. Both companies have to deal with rising content prices and Dish, given its smaller footprint, is looking to turn wireless into a competitive edge.
The move toward wireless isn’t out of left field -- the company has made several steps toward that end already, and currently awaits FCC approval to use previously acquired spectrum. Dish purchased spectrum from DBSD North America Inc. and Terrestar Networks in 2011. Mr. Ergen believes Dish has an 80% chance of succeeding with wireless, but that seems like a high estimate. The wireless race and subsequent clamoring for spectrum is heating up, and I’m not sure Dish is in a position to prosper. AT&T (NYSE: T) is looking for more spectrum after the failure of its merger with T-Mobile USA and T-Mobile is investing the $4 billion breakup fee into building its own LTE network. Dish may be better off initiating a joint venture with one or the other since both already operate wireless networks and both are actively seeking additional spectrum. If Dish gains approval in March, it will take several years to build out their network but a joint venture that unlocks the value of its spectrum quickly could be immediately accretive.
The cable and wireless companies already have a huge lead and Dish recognizes that they need more options to bundle with their primary service. Competitors AT&T, Comcast (NASDAQ: CMCSA), and Verizon (NYSE: VZ) all offer bundles that include video and phone service as well as providing broadband internet. Additionally both Comcast and Verizon have announced streaming video services designed to compete with Netflix and Dish’s own Blockbuster Pass offering. Comcast’s offering, Xfinity Streampix, launched Thursday and is directly comparable to Dish’s own offering. Both are restricted to their respective service providers and act as an add-on to their current package offerings. Streampix isn’t a direct competitor to Dish’s Blockbuster Pass, but it does remove a selling point Dish had over Comcast.
The bottom line is this: Dish needs to continue to improve its offerings, but I’m not sure running a wireless network is the solution. The big wireless providers are in heated competition and spectrum has become increasingly valuable. AT&T is on the hunt and Verizon is busy trying to buy $3.9 billion in spectrum from a group of cable companies. Rival T-Mobile is building its own LTE network while trying to scuttle the Verizon deal, complaining that Verizon’s acquisition of additional wireless would be “checkmating crucial avenues for growth of its smaller competitors.” In light of all that, I think Dish is better off finding a way to cash in on its spectrum without building its own network. I’m currently neutral on the stock, but will be watching carefully for the FCC decision and Dish’s subsequent reaction.
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