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Morningstar | Dish's Wireless Ambitions Face Many Hurdles as Deadlines Approach; Lowering FVE to $43

Dish Network’s massive bet on wireless spectrum overshadows its declining cash-cow satellite television business. The firm has spent $21 billion (about $46 per share) to acquire a variety of spectrum licenses over the past decade, with most of that spending occurring at competitive FCC auctions where the firm had to beat out wireless carriers far better positioned to put spectrum to use. That spending has placed a sizable debt burden on Dish, which we expect will force the firm to direct most cash flow to reduce leverage rather than invest in the business. With buildout requirements tied to several licenses looming in 2020, strategic inflexibility comes at a poor time.Dish’s satellite television customer base peaked during 2013 at 14.1 million and has declined every quarter since, sitting at 10.7 million today. The firm’s network of owned and leased satellites is extremely efficient at delivering traditional television service but generally incapable of delivering other services. The nature of the television business has changed dramatically in recent years as rival cable and phone companies have focused on Internet access, selling television service at steadily lower margins. Consumer tastes are also rapidly changing in favor of on-demand content, often delivered over the Internet. To its credit, Dish recognized the shifting television landscape early, sharply cutting investment in customer acquisition and focusing its efforts on more rural areas where competitive alternatives are less available. The firm also launched Sling, an Internet-based television offering of its own. These actions have kept cash flow healthy despite the shrinking customer base.Wireless spectrum is Dish’s grander strategy to build a sustainable future, but we are highly skeptical of this effort. The U.S. wireless business is mature and highly competitive today, with little room for a new entrant building from scratch. Dish appears unwilling to partner with an existing carrier, at least on terms acceptable to the carriers. We see little reason why any would be partner would capitulate now with buildout requirements on the horizon.