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For better or for worse, DISH Network (NASDAQ: DISH ) has been relentlessly chasing down the ability to launch its own wireless service, in an effort to compete with the major telecom companies and expand the range of its own business. This week books a predictable, yet still important, win for DISH, as the company has received the seal of approval from the FCC to use its spectrum to launch the wireless network. The decision puts to rest some speculation that DISH would not be able to move forward with its plans, as some saw it as a too-tough-to-climb mountain against the lobbying forces of major telecom companies. Still, there's an important caveat to DISH's newly-approved network, and investors need to know what this means for the future of the company. What will DISH do with its newly-minted business?
Chalk one up for DISH
Covering both DISH and DIRECTV (UNKNOWN: DTV.DL ) for more than a year, I have often made it clear that DISH takes a big risk in investing billions of dollars into its potential wireless network. The risk comes in the form of government regulation, intense competition and, quite simply, a complicated business. The two major satellite providers have been exercising far different strategies: DIRECTV has been expanding its core business into Latin America to drive revenue growth while DISH has let its own subscription numbers lag behind, using its capital elsewhere.
Well, some of that risk has disappeared for DISH, but they aren't out of the woods quite yet. As mentioned in another recent article, DISH will only be able to use a set amount of its capacity in delivering smartphone services to customers. At the user end, this likely means slower downloading speeds for high-data applications, such as uploading photos. This alone threatens DISH's new business, as customers will have little tolerance for slow speeds when they have the option of Verizon (NYSE: VZ ) and AT&T (NYSE: T ) . For the customer, the end game is to have as much access and data as possible while paying the least amount, and DISH may really run into issues here.
It is perhaps with this in mind that DISH has nodded at the idea of joining up with another company, possibly Sprint (NYSE: S ) or Google , to beef up the abilities of its network and make it a competitive service. By partnering with Sprint, DISH could easily tap into the cellular company's existing user base and make an easy task of gaining immediate market share. The move would also alleviate some of the cost, which has already racked up to $4 billion for DISH, and will cost many more billions before we see DISH offering cellular plans to you and me.
An easy answer?
Nonetheless, 2013 should prove to be an exciting time for the company, as this FCC approval at least gives the company a more valuable bargaining chip, and relieves investors, who were nervous about this expensive, risky capital outlay.
The development also makes the oft-mentioned merger idea between DISH and DIRECTV even more interesting. Though DIRECTV management has said in the past that it intends to focus on growing its LatAm business and shifting its U.S. subscribers to higher ARPUs (average revenue per unit), it probably doesn't want to be the only media outlet in town not offering some sort of parallel service. With the FCC's approval, any purchase price for DISH has likely gone up and will continue to do so, so there may be some heat for DIRECTV management to make a move, or tell us otherwise.
Where do I invest?
The future is still not crystal clear for DISH, though they have made an impressive stride forward in the face of much difficulty. If the company is successful in launching its wireless network, gaining customers, and keeping those customers on board, it will be nothing short of transformative for the company and, likely, its stock.
For me, this is still a difficult one to assess, and there could be a roadblock coming out of left field that would keep things from really taking off. In that case, you have a satellite provider that has focused all of its energy and money on the wrong business, and all while DIRECTV further cements itself as the number one satellite television provider. Erring on the side of safety, I still favor DIRECTV and its fast growing Latin American business, which will drive revenues and cash flow for the foreseeable future.
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