U.S. airwaves auction to settle mystery over Dish valuation
By Marina Lopes and Alina Selyukh
WASHINGTON (Reuters) - It is the billion-dollar question in the U.S. telecom industry: What will satellite TV mogul Charlie Ergen do with his Dish Network Corp?
Although it has long been a focus of M&A speculation, one hurdle has remained constant: the uncertain value of Dish’s spectrum holdings. And the Federal Communications Commission's auction of airwaves that begins on Thursday may provide an answer.
Dish has so far remained independent even as dealmaking heated up elsewhere in the cable, satellite and wireless sectors. But even as a standalone entity, fans of Ergen's company, including hedge funds like Omega Advisors Inc, believe its wireless spectrum holdings represents a trove of hidden value.
"I may be off my rocker, but I think the spectrum you have could be worth as much as the entire market value of the company, presently," Omega founder Leon Cooperman told Ergen on a recent Dish conference call, referring to Dish's roughly $30 billion market cap.
Parts of that valuation mystery may soon be solved. Ergen has said the FCC auction is "going to tell us where we stand on a baseline value as a company."
The auction of AWS-3 spectrum, expected to raise at least $10 billion, is the largest since 2008 and will sell access to mid-band frequencies similar to the ones controlled by Dish.
Dish is expected to be a prominent participant but more is at stake. Regardless of whether the company wins any licenses, the price tag attached to the spectrum in the auction will, for the first time, crystallize the value of Dish's prime asset.
Dish has spent $10.5 billion on spectrum since 2008, but its true market value is uncertain because it takes government auctions such as this to set a formal benchmark.
Dish has declined to discuss the auction, citing strict rules.
Some observers have questioned Ergen's optimism, noting that
the auction comes at a time when the wireless carriers already have a notable amount of such mid-band spectrum. Wireless carriers like T-Mobile US Inc are struggling with free cash flow, which will also be critical for the 2016 auction of much more valuable low-frequency airwaves.
"Dish Network's valuation hinges on the idea that there's an almost insatiable demand for spectrum," said MoffettNathanson LLC analyst Craig Moffett. "Demand for mid-band spectrum right now may not be all that high... The idea that all spectrum is good spectrum has been proven to be not quite right."
To be sure, historically the value of spectrum has risen with time and many investors are enthused about having a formal benchmark for Dish's value.
Dish's shares have recently weakened as customers abandon satellite providers in pursuit of stronger broadband offering. A successful auction could re-kindle interest from potential acquirers.
"It creates optionality for Dish," said Moody's Investors Service analyst Mark Stodden and "keeps them in the discussion."
(Additional reporting by Liana Baker; Editing by Cynthia Osterman)
