Dish Weighs Options to Partner, Merge With Wireless Carriers, Ergen Says
Following an unsuccessful bid for Sprint Nextel, Dish Network has many options for use of its AWS-4 spectrum, said Chairman Charles Ergen. Merging with DirecTV or T-Mobile, or partnering with Sprint are all open, he said during a second quarter 2013 teleconference. Analysts we spoke with earlier made similar comments (CD July 30 p4). Dish lost $11 million in the quarter, vs. a $226 million profit in the same period last year. It also had fewer gross subscribers at 624,000, compared with about 665,000 from the same period the previous year, it said.
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There’s a lot of “optionality” for Dish in the wireless business, Ergen said. T-Mobile is probably the best option when it comes to a merger, he said: T-Mobile can be put together with Dish, “but that’s not possible with the other wireless providers.” The T-Mobile network upgrade is much simpler than Sprint’s, he said. T-Mobile has momentum because Leap Wireless is for sale and Sprint is tied up in a merger, he added.
Merging with DirecTV would make sense strategically, Ergen said, but the strategic direction of both companies must be in sync and “you'd have to be comfortable with it from a regulatory perspective.” Sprint can still be a potential partner, Ergen said. Sprint and Clearwire “understood the synergy and strategic reason that we were an attractive option,” he said.
Disputes on retransmission consent could drive consolidation in the wireless and pay-TV markets, Ergen said. Dish’s dispute with Raycom (CD Aug 2 p6) and Time Warner Cable’s dispute with CBS (CD Aug 6 p2) have both led to blackouts in several markets. There are five big programming groups, that are essentially monopolies, he said. “They're raising their rates and Congress hasn’t done anything to level the playing field.” Consolidation is more achievable today because the retransmission model is “too one-sided and consumers are losing out on that,” he said. “Raycom is a negative for us short term, but overriding things is that broadcasters, as an industry, have gotten more aggressive,” Ergen added. The actions of broadcasters likely will lead to either industry consolidation, action from Congress, or new alternatives, like Aereo, he said. People may quit watching broadcast networks, he said. “Whenever CBS comes back on, customers probably won’t watch CBS as much."
The lines are blurring between traditional delivery methods and digital content delivery, said Tom Cullen, executive vice president. He said he’s concerned about the CBS programming blackout for TWC subscribers over the air and online. A Dish subscriber can also be a TWC subscriber, he said: “It bothers us that our customers would be brought into the fray in a dispute between CBS and Time Warner Cable."
Ergen said Dish will work to find a retransmission deal with Disney that works well for customers as its agreement with Disney nears renewal. “If we don’t get that deal, we'll part ways.” Disney has been a good partner for a long time, he added.
Ergen said paying $350 million of LightSquared’s debt last year and a $2.2 billion bid for LightSquared spectrum is a long-term play. LightSquared “is a unique property with a lot of problems,” he said. The spectrum “could fit with spectrum we have long-term,” he added: “There are lots of hoops to jump through from a regulatory point of view.”
Dish isn’t ruling out a bid for the H block, but it’s more attractive to Sprint, Ergen said. “Sprint pretty much got the rules they wanted for H block.” The spectrum is uplink and Dish needs more downlink spectrum, he said: But “that doesn’t mean we wouldn’t participate because we want to make sure a fair price is paid.” The DBS company also may participate in the broadcast spectrum incentive auction, he added.
Dish had more revenue for the quarter, $3.61 billion compared to $3.57 billion in Q2 2012, it said. The number of pay-TV subscribers declined by about 78,000 subscribers. It had a 24 percent increase in broadband subscribers, bringing the subscriber count to 310,000, it said.