Amid Media M&A Flurry, Where Is Charlie Ergen?
(Bloomberg Opinion) -- Charlie Ergen, if you do have a trick up your sleeve, now would be the time to use it.
The satellite-TV billionaire, known for his M&A flirtations and fake outs, has been uncharacteristically quiet amid this year’s flurry of mergers in and around the industry. That has investors in his Dish Network Corp. increasingly concerned about where the company fits in. After all, AT&T Inc., the parent of Dish’s closest rival, DirecTV, is morphing into a powerful media conglomerate through its recent takeover of Time Warner. T-Mobile US Inc. and Sprint Corp. — both previously and unsuccessfully targeted by Ergen — are also trying to link up with one another, at the same time that Walt Disney Co. and Comcast Corp. are pursuing 21st Century Fox Inc. Comcast competes with Dish in providing pay-TV services, while its NBCUniversal unit, along with Disney and Fox, own the networks that Dish pays to carry.
Keep in mind that these mergers are largely about two things: leverage over consumers and leverage over one another. That’s a big reason Dish’s stock price has sunk 30 percent this year for by far the worst return among S&P 500 media companies. Dish’s $2 billion of senior unsecured bonds due in 2026 have also yielded double digits at times during the past two months, as its satellite business continues to bleed subscribers.
But Ergen seems entirely focused on another number: 5G. That refers to the next generation of wireless networks, expected to be so fast that they’ll enable things like driverless cars. Dish isn’t a wireless carrier, but it’s sitting on some $30 billion worth of spectrum licenses that can, in theory, be used to build a wireless network. Even so, most investors never really expected that to be the 65-year-old Dish chairman’s plan. He was supposed to sell the spectrum to any number of companies salivating for the scarce resource, tack on the withering satellite business for a handsome exit and then sail off into the sunset.
The Federal Communications Commission requires Dish to use the spectrum or lose it, with deadlines along the way to have a certain amount of its network constructed. According to a July 9 letter from the FCC to Dish, the company missed three earlier checkpoints, which pushed the ultimate deadline up by a year to March 2020. Does anyone really believe Dish is going to have a network built by then?
When Ergen stepped aside as CEO in December, it seemed like this might finally be the year of the Dish megadeal investors have been awaiting. Even though Ergen has always kept his cards close to the vest and Dish said he gave up the CEO title so that he could “devote more attention to the company’s emerging wireless business,” it still felt like something else was brewing. With Ergen, it usually is. In the past, he’s tried to upset bids for Sprint and Clearwire, and there were reports last year that Dish and Amazon.com Inc. were considering a wireless partnership. And yet, to this day Dish has never done a deal bigger than $2 billion.
Fortunately for shareholders, the spectrum assets put a floor under Dish’s valuation. But bondholders of Dish DBS, the company’s pay-TV subsidiary, have no claim on those licenses, and Dish Network doesn’t guarantee debt sold by the unit, according to Stephen Flynn, a senior credit analyst for Bloomberg Intelligence.
Sling TV is an important but overlooked asset within Dish. It was an early mover in TV streaming, though competition has become intense as there are lower barriers to entry. It’s also extremely easy for consumers to cancel such services versus the headache of dropping cable. AT&T copied Dish’s Sling TV by recently raising the cost of its cheapest DirecTV Now package by $5 a month, as both companies vie for the miniscule margins offered by internet streaming services. I could still see a buyer being drawn to Sling, and I wouldn’t count out a deal between Dish and Verizon Communications Inc., which could really use its spectrum.
The clock is ticking, and it’s time for Ergen to get serious about a deal or build its network. Shareholders should cross their fingers that it’s the former.
©2018 Bloomberg L.P.