One of the dangers of focusing on short-term price movements is the news that pushes a stock sharply higher one month can give way to a fading promise and cause the stock to fall shortly thereafter. Investors in DISH Network (NASDAQ:DISH) have to wonder whether they're seeing that phenomenon play out with their shares, as the satellite television provider's stock soared 25% last month but has given back more than 8% of its value in the first four days of December. As those following the stock try to figure out the implications of consolidation in the industry and the future of the company as an independent entity, DISH Network faces a number of strategic decisions that could go a long way toward deciding whether it succeeds, or fails to make the most of the opportunity it has in telecom right now. Let's look at why DISH Network climbed so far in November and what might be pulling it back this month.
The big win that sent DISH higher
The most interesting thing about DISH Network's big surge is that it came from an event that is largely unrelated to the company's current portfolio of business assets. Yet in the wireless world, spectrum has become a key asset, and the most recent spectrum auction from the Federal Communications Commission was the catalyst that caused investors to re-evaluate what DISH Network's existing spectrum assets are worth.
The FCC's Auction 97 began on Nov. 13, and it offered valuable mid-range AWS-3 spectrum frequencies to a range of bidders. With AT&T (NYSE:T), Verizon (NYSE:VZ), T-Mobile (NASDAQ:TMUS), and other telecom companies always hungry for additional spectrum in order to improve service quality and increase bandwidth, most investors expected the FCC's first big spectrum auction since 2008 to draw huge bids, with some estimates putting the final take at around $10 billion.
By Thanksgiving week, though, those initial estimates had proven woefully inadequate. On Nov. 24, the total bid at Auction 97 exceeded $35 billion. That led some investors to believe that Verizon and AT&T were likely bidding up the value of the spectrum for auction, raising concerns about overvaluation.
For DISH, though, the auction action sent shares higher for a simple reason: DISH already owns a huge amount of similar spectrum assets that it thus far hasn't put to use. In fact, for technical reasons, the type of spectrum that DISH owns is potentially more attractive to buyers than what companies could buy at the FCC auction. In response, shareholders are speculating that DISH will eventually become too attractive for would-be acquirers to pass up, and when the bids come in, they'll reflect the high valuations that the FCC auction set for its spectrum assets.
But where's the buyer for DISH?
The problem for DISH Network, though, is whether it can actually lure in that elusive buyer. AT&T has announced a prospective deal with DirecTV (NYSE:DTV.DL), and with Verizon having spent $130 billion to take full control of its wireless division, it might not have the appetite for a huge buyout or asset purchase right now. Meanwhile, the terms of DISH's licenses require it to have at least 40% used for mobile devices by 2017 and 70% by 2021, meaning that DISH is slowly but surely running out of time.
DISH isn't just waiting in the wings, though. In the past, it made a bid for Sprint, and it's possible that the company could move to cement a deal with T-Mobile. Given T-Mobile's efforts to join forces with Sprint, DISH is dealing with several moving pieces that could make a merger impracticable. Nevertheless, given the value that DISH's spectrum assets would have for T-Mobile regardless of whether it merges with Sprint or goes it alone, speculation about a possible combination is likely to continue -- but the longer it takes, the more likely it is that DISH shareholders will lose hope and send share prices back downward.
Meanwhile, DISH has been dealing with challenges in its core business. Ongoing contract negotiations with several key content providers, including CBS and Turner Broadcasting, haven't moved as quickly as some investors had hoped, and the potential for blackouts could be a short-term negative for the company.
Given the huge demand for wireless spectrum, it's no surprise that DISH Network has performed well recently. Yet if the company never manages to sell or make use of that spectrum, then shareholders won't be able to count on ever realizing the full value of DISH Network's assets. As long as that spectrum sits unused, it's not generating a penny for DISH, and what remains to be seen is how aggressive DISH might become in seeking to divest its spectrum in the future.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.