[opendtv] FierceWireless: How Charlie Ergen turned a satellite TV provider into a spectrum powerhouse, and what he might do next

  • From: "Manfredi, Albert E" <albert.e.manfredi@xxxxxxxxxx>
  • To: "opendtv@xxxxxxxxxxxxx" <opendtv@xxxxxxxxxxxxx>
  • Date: Mon, 2 Feb 2015 02:18:56 +0000

Craig Birkmaier wrote:

> So Bert's new spin is that cable is winning the ISP wars, which is
> causing DBS subscribers to move to cable for ISP and MVPD services.

Sure, and that wasn't my "spin," as you call it. It was in fact explained in an 
article you posted, Craig, with numbers to prove their point.

> But he is all excited about the Dish Sling bundle, which requires
> ISP service from a potential competitor in the cable or telco
> business. What a conumdrum!

Not at all a conundrum! We have talked for a very long time about how cable has 
a clear role in the Internet TV future, and how the DBS companies do not. And I 
also suggested that DBS companies could reinvent themselves into satellite ISPs 
for rural broadband, and/or into OTT sites (given they have rights to lots of 
content already)?

Sling TV is simply evidence of the latter type of rebirth. Other MVPDs have a 
less urgent imperative, because they can still find people out there ready and 
willing to fork out more and more each month, for the legacy model, even while 
these cabled MVPDs evolve and improve their neutral ISP services.

> But it looks like Dish is serious about evolving from a DBS
> service that offers MVPD bundles, into a VMVPD that also offers
> broadband.

"Also offers broadband," yes. The AWS-3 spectrum covers 1695-1710 MHz, 
1755-1780 MHz, and 2155-2180 MHz bands. I suppose these could be used for 
satellite or cellular terrestrial, although it does not seem like a lot of 
spectrum for two-way satellite ISP service? Cellular exploits the spectrum 
better. And Dish bid through either subsidiaries or partners, don't know which.

Craig insists, but I doubt this VMVPD notion, and so does Ergen. Dish already 
offers the MVPD model wirelessly (from satellite). This article suggests OTT 
service, not a duplicate of the MVPD model, over a cell network. And/or leasing 
the spectrum to others, also for cellular service.

"[Ergen] noted that more and more people are going to view video on mobile 
devices via over-the-top content models and that Dish would look to launch a 
new service that 'hopefully is **incremental to the business today**, hopefully 
has a **different advertising model** than the way we do it today with DVRs, 
and hopefully, it leads to a mobile business or wireless business that's 
incremental revenue to our content partners.'"

To me, this is yet another example of MVPDs morphing into OTT sites, through 
Internet distribution which is not a duplicate of the old way.

Bert

-------------------------------------
http://www.fiercewireless.com/story/how-charlie-ergen-turned-satellite-tv-provider-spectrum-powerhouse-and-what/2015-01-30

How Charlie Ergen turned a satellite TV provider into a spectrum powerhouse, 
and what he might do next
January 30, 2015 | By Phil Goldstein

Dish Network (NASDAQ: DISH) is spending around $10 billion to acquire a wide 
range of spectrum licenses in the FCC's now-completed AWS-3 spectrum auction. 
That spectrum, combined with the wide-ranging spectrum licenses that Dish 
already owns, will turn Charlie Ergen's company into a spectrum powerhouse. 

But it's still not clear what Ergen's Dish is going to do with all of its 
airwaves.

Before we dive into what happens now following the AWS-3 auction, it's worth 
taking a moment to step back and recount how Dish, under Chairman Charlie 
Ergen, built itself up into one of the five largest spectrum holders in the 
U.S. wireless market.

In 2008, Dish was a satellite TV operator with 13.5 percent market share of the 
pay-TV market, behind rival DirecTV's (NASDAQ: DTV) 17.4 percent market share. 
That was when Ergen started moving into the wireless industry:

* Dish's EchoStar purchased 700 MHz E Block spectrum in 2008 in the FCC's 
auction of those radio waves.

* In the summer of 2011 Dish spent $2.77 billion to acquire 40 MHz of S-band 
satellite spectrum from bankrupt TerreStar and DBSD North America.

* Then, in December 2012, the FCC voted to let Dish use its satellite spectrum 
for terrestrial use, a major windfall for Ergen. Dish's 40 MHz of spectrum, 
dubbed AWS-4, runs from 2000-2020 MHz (for the uplink) and 2180-2200 MHz (for 
the downlink). However, the FCC said Dish must cover at least 40 percent of the 
population in areas covered by its AWS-4 spectrum with a wireless network in 
the next four years (the end of 2016), or face penalties. Further, the FCC said 
Dish must cover at least 70 percent of that population within seven years.

* Dish tried and failed in the spring of 2013 to acquire Sprint (NYSE:S), 
losing a bidding war to SoftBank. Dish also tried to acquire Sprint partner 
Clearwire, which Sprint ultimately bought. Both deals would have netted Dish 
troves of spectrum.

* In February 2014, Dish paid $1.564 billion to acquire the 10 MHz H Block in 
the 1900 MHz PCS band in an auction--Dish was the only major bidder in the 
auction. Impressively, Dish also managed to get the FCC to agree to let Dish 
use the 2000-2020 MHz band in the H Block for downlink operations instead of 
uplink operations. The H Block is a block of paired airwaves that runs from 
1915-1920 MHz (for the uplink) and from 1995-2000 MHz (for the downlink).

* Finally, Dish is also trying to gain control of bankrupt LightSquared's 
L-band spectrum.

And now, thanks to Dish's 85 percent ownership in AWS-3 bidding entities 
Northstar Wireless and SNR Wireless, the company will get even more spectrum. 
Notably, it will also get that spectrum on the cheap--both Northstar and SNR 
will receive 25 percent small-business discounts from the FCC because they are 
"designated entities." Northstar and SNR spent a combined $13.32 billion in 
gross bids but that number will be lowered to around $10 billion due to the 
discounts. Dish's American AWS-3 Wireless, its wholly-owned, direct-subsidiary 
bidding entity, did not win any spectrum in the auction.

So what did Dish, via its designated entities, win in the AWS-3 auction? Lots 
of paired spectrum in major markets. 

In total, Northstar won 345 total licenses (out of 1,614 up for grabs) and SNR 
won 357. Together they won seven licenses in the highly coveted 10x10 MHz J 
Block (out of 176 total), mainly in secondary markets (though SNR won the J 
Block in Minneapolis, Charlotte, N.C., and Cincinnati, Ohio.)

Northstar won the 5x5 MHz I and G Blocks in New York, the G Block in Los 
Angeles, the 5x5 MHz H and I Blocks in Chicago, the G Block in Dallas, and the 
I Block in Boston, and many other paired spectrum blocks in large markets. 
Meanwhile, SNR Wireless won the H Block in New York; the G Block in Atlanta, 
Boston, Chicago, Philadelphia, and Washington, D.C.; and many other paired 
spectrum blocks in large markets.

What is Dish going to do with all of that spectrum? That's been the question 
ever since Dish started buying up airwaves. In August, Ergen said this about 
the company's wireless ambitions, according to a Seeking Alpha transcript: "I 
think our dream would be to compete in the marketplace, bring a better product 
to consumers, be disruptive, be innovative and enhance the video business that 
we have today." He noted that more and more people are going to view video on 
mobile devices via over-the-top content models and that Dish would look to 
launch a new service that "hopefully is incremental to the business today, 
hopefully has a different advertising model than the way we do it today with 
DVRs, and hopefully, it leads to a mobile business or wireless business that's 
incremental revenue to our content partners."

Should we take that at face value? Perhaps we should. But there are reasons to 
doubt that's what Dish wants to do with its spectrum.

Here are some thoughts on what Dish might do next, from least likely to most 
likely:

* Dish could buy its way into wireless by acquiring or merging with T-Mobile US 
(NYSE:TMUS). T-Mobile parent Deutsche Telekom clearly would like to unload its 
U.S. unit, but a deal with Dish seems unlikely since DT's asking price might be 
too high for Ergen--after all, Dish's bidding entities now owe the FCC $10 
billion for spectrum.

* Dish could partner with Sprint to have Sprint host Dish's spectrum on its 
multi-mode base stations. Dish and Sprint are already partnering on fixed 
TD-LTE service on a trial basis. Would Dish want to take that nationally? 
Potentially, but then why would Dish have spent so much on AWS-3 spectrum when 
it could already do that with its existing airwaves? Either way, Dish is now 
buying into an ecosystem that other carriers will invest in (AT&T and Verizon 
both purchased huge blocks of AWS-3 spectrum, meaning that they will now start 
buying network infrastructure and handsets that can use the spectrum).

* Dish might lease its spectrum as excess capacity back to wireless carriers, a 
model that the FCC's AWS-3 auction rules allow. Jefferies analysts Mike 
McCormack, Scott Goldman and Tudor Mustata wrote in a research note that "we 
continue to believe that Dish's attractive spectrum portfolio should accrete in 
value over time towards the overall price/MHz-POP paid in the AWS-3 auction. 
Given our expectations for delays in the [600 MHz incentive] spectrum auction, 
Dish's spectrum arsenal represents the most attractive, available spectrum in 
the near-to mid-term."

TMF Associates analyst Tim Farrar told me that for the most part Dish "focused 
on the key cities, where the expectation is Verizon (NYSE: VZ) and AT&T (NYSE: 
T) are most capacity constrained and therefore have the most need to get access 
to additional spectrum."

"The whole point here is that he [Ergen] is his basically trying to force 
Verizon or AT&T to buy or lease some of Dish's spectrum," he added. "No way 
this is a precursor to [Dish] building something out."

If Dish wanted to build out a network, why not invest $10 billion in network 
infrastructure to do so? Farrar, who accurately predicted that Dish's 
designated entities would win more than $9.6 billion in spectrum, said Verizon 
and AT&T are the only companies in a position to pay Dish what Ergen thinks his 
spectrum his worth. A deal with Verizon would be more likely since AT&T spent 
$18.2 billion to get a nationwide 10x10 MHz footprint of AWS-3 spectrum--AT&T 
is also working to close its $48.5 billion purchase of DirecTV.

However, Sprint could undermine a deal between Dish and Verizon by selling its 
excess 2.5 GHz spectrum, something Sprint CEO Marcelo Claure indicated in early 
January that Sprint was open to doing. "Is Sprint going to do a deal with 
Verizon to sell them 2.5 [GHz spectrum] and leave Charlie stuck?" Farrar said. 
"I think the answer to that is very likely, yes. Because Charlie has just cost 
everyone $20 billion in terms of extra money they didn't need to bid on 
spectrum if Dish hadn't been so aggressive."

Ergen has built Dish into a major player in the wireless industry by cobbling 
together a massive, diverse spectrum portfolio via financial, legal and 
regulatory wheeling and dealing. Now the question is whether he can do anything 
with all of that spectrum.--Phil

Article updated Jan. 30 at 9 p.m. ET to reflect that Dish is currently unlikely 
to gain control of LightSquared's spectrum.

 
 
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