Poor DISH Network (NASDAQ: DISH ) keeps getting left out of telecom speed-dating events. The company is one of the best positioned to benefit from industry consolidation, considering its substantial presence in the pay-TV world and a very valuable portfolio of spectrum, yet its options are thinning quickly. With the most recent news of the DirecTV (NASDAQ: DTV ) and AT&T (NYSE: T ) deal, DISH's competitive position in the TV world is under even greater pressure. Is something keeping suitors away from DISH? Let's take a closer look.
Great on paper
For a telecom looking to snatch up a complimentary business, DISH should be an attractive mate. The company owns heaps of what wireless businesses need most -- spectrum. DISH Chairman Charlie Ergen made accumulating spectrum a priority years ago, with eyes on jumping headfirst into the wireless business, but that has turned into something strikingly similar to the way Floridians drive -- slow and seemingly directionless. Even though it has temporary approval from the FCC to deploy its spectrum (a valuable asset in itself), the company can't seem to find a suitor.
DISH's core pay-TV business isn't too shabby, either. As opposed to many cable operators (mostly part of telecom conglomerates) that continue to lose video subscribers, DISH recently posted a net subscriber gain of 40,000. Average revenue per user, the go-to metric for unit-level profitability, grew by roughly $4. Churn rate, which reflects monthly shifts in customers leaving the service, shrunk down to 1.42% from 1.47%.
DISH Network is not a shoddy applicant by any stretch of the imagination, so what gives?
Why did AT&T pursue DirecTV over DISH? One big reason may be that, on the pay-TV front, DirecTV is a better business with a tremendous presence in Latin America. AT&T could use the company's presence in the region as a launch pad, considering that its existing international business is achieved largely through partnerships. As opposed to in the U.S., where Comcast is by far the industry juggernaut (and even more so if it's own merger with Time Warner Cable passes regulatory muster), DirecTV is Latin America's largest pay-TV provider.
Now, AT&T needs as much spectrum as possible to meet demand, as do all telecoms, given the rapidly increasing data usage in the United States and beyond. But when compared with the opportunity of tapping into one of the most underpenetrated, fastest-growing pay-TV markets in the world, the company may have seen more value (especially on a comparable price basis) in DirecTV than DISH's spectrum offering.
Going forward, DISH investors need to see interest from another major telecom, such as Verizon, or a partnership with a company that enables DISH to launch its spectrum before its too late. The price of the stock has baked in the opportunity and value of the multibillion-dollar portfolio, and without it there is considerable downside. The consolidation may not be in the best interest of the end user, but it's happening, and DISH needs to partner up. Otherwise, this satellite player may be left out in the cold.
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