By Shalini Ramachandran
Dish Network Corp. Chief Executive Charlie Ergen on Wednesday
gave his most downbeat outlook yet on the satellite provider's
prospects for entering the wireless industry, in light of a
proposed order by the Federal Communications Commission to revoke
$3.3 billion in small-business discounts won by Dish-affiliated
entities in a recent government auction of airwaves.
Speaking on a second-quarter earnings conference call, Mr. Ergen
indicated that Dish is more inclined at this point to sell or lease
its spectrum to existing carriers than pursue an entry into the
wireless business as a competitor. In addition, he said the
uncertainty caused by the FCC's proposed decision would make it
"virtually impossible" for Dish to pursue mergers or acquisitions
at this time, given the dent that paying the additional billions of
dollars would make in Dish's pocketbook.
The Wall Street Journal reported earlier this summer that Dish
and T-Mobile US were having talks over a potential merger deal. Mr.
Ergen on the call said that the doubt surrounding the discounts was
the "most complicating factor" from Dish's perspective in reaching
a deal with T-Mobile. If Dish decides to pay the full price for the
airwaves it won, "then you've got less to work with and certainly
would complicate M&A in a way you couldn't do it."
On Wednesday, Dish reported a profit of $324 million in the
quarter, up from a year-earlier profit of $213 million, helped by
$135 million in gains from its investment securities and
derivatives. Revenue grew to $3.83 billion from $3.69 billion a
year earlier, topping analyst estimates. The higher profits and
revenues came despite an accelerated loss of pay TV subscribers in
the quarter, as the satellite TV provider shed 81,000 customers,
compared with a loss of 44,000 in the year-ago period.
Mr. Ergen reiterated that his passion was to pursue deals in the
wireless industry to compete with industry giants AT&T and
Verizon, to offset the maturation of Dish's core pay TV business.
But losing the discounts makes that path less likely.
Bowing out of entering the wireless business as a competitor is
"probably good for shareholders in the short run and certainly a
much more conservative approach for us, but it's not as exciting to
me as an entrepreneur and not as exciting to me long-term," Mr.
Ergen said. "But that's the way we would be leaning today because
ultimately we're going to run this company for shareholders and
make the best economic judgment we can make, regardless of where
our passion would be." Along that vein, Mr. Ergen said it may be
attractive at some point for the company to split apart its video
business from its spectrum business, which would give the company
more flexibility to pursue spectrum sale or lease deals.
Given the FCC's pushback on Dish and its affiliates in the
spectrum auction, Mr. Ergen said the company was left with three
options: refuse to buy the spectrum and pay a penalty, which he
said could amount to "a couple billion dollars." The second option
is to pay the additional $3.3 billion and keep the spectrum. The
third is to sue the FCC and hope the decision is overturned.
Mr. Ergen said the second option may be the most attractive.
Paying the additional $3.3 billion also eliminates restrictions
about what Dish can do with it, he said. Under the rules to qualify
for the small-business credits, Dish couldn't sell or lease all of
the spectrum outright because the entities were encouraged to put
the airwaves to use by building a network themselves or partnering
with a carrier.
Mr. Ergen said the FCC's decision on the discounts signaled
regulators were looking out for the wireless incumbents. "The
decision was black and white in my position. Are you for the
incumbents? Nobody has the power to shift the FCC unless they're
pretty big guys," Mr. Ergen said. "If you come down for
competition, you'd say Dish followed the rule to get the discount
and obviously there would have been...a lot of opportunity within
the M&A space to get to stronger people to compete against the
top two guys."
Ryan Knutson contributed to this article.
Write to Shalini Ramachandran at
shalini.ramachandran@wsj.com
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