Dish Network CEO Charlie Ergen has options if the FCC decides against awarding its bidding partners $3.3 billion in Designated Entity (DE) credits won during this year’s AWS-3 spectrum auction.
But if those options involve paying the difference, it could have a limiting impact on the company’s M&A options.
During a Wednesday earnings call, Ergen said that if the FCC declines Dish’s DE bidding credits it means the Commission is “siding with the big guys” and sending a “strong signal that we’re probably not getting into the market in a competitive way.”
Dish has recently been tied to reports about a merger with T-Mobile but those early talks have reportedly stalled as the two companies disagree about the structure of a combined company.
Dish previously tried and failed to acquire Sprint, which ultimately was purchased by Japanese operator SoftBank.
But whatever roadblocks Dish has hit so far in its M&A strategy, the process of finding a potential partner would be further complicated by having to shell out much more capital than originally planned.
The $3.3 billion in discounts were awarded to Dish’s DE bidding partners SNR Wireless and Northstar. But Dish and Ergen have confirmed the current FCC order is against awarding the discounts on the grounds that Dish had a controlling interest in both SNR and Northstar, meaning that Dish’s revenues would be attributed to both companies and leave them ineligible for the DE program.
If denying the discounts is the direction in which the FCC heads, Ergen spelled out a handful of options at Dish’s disposal.
Ergen said Dish could not pay the money. But that option carries a 15 percent penalty and that could end up costing Dish more because the percentage would be based on the price the spectrum licenses fetch after being re-auctioned.
A second option would be to pay the money, which Ergen said would open up further options down the road.
“It will eliminate some of the very negative handcuffs on the spectrum,” Ergen said, explaining that paying in full would allow Dish to sell or lease the spectrum with less restrictions.
Ergen said a third option is to sue but that would mean Dish first has to pay full price for the spectrum.
Regardless of the outcome, Ergen was complimentary of the current FCC administration. But he said that his admiration for Chairman Tom Wheeler’s and his staff’s push for stronger competition made it more disappointing that Dish’s DE discounts were in question.
“They want us to be disruptive in the marketplace but not in the auction,” Ergen said. “But if they give us the discount, then [we] feel more comfortable going to compete.”
If Dish is going to compete in the wireless market, it will likely need a partner. Ergen pointed out that a network for its wireless spectrum is one of the building blocks Dish doesn’t have in place.
But, for the time being, Ergen said Dish is pretty well situated in the pay-TV business, which he admitted is declining but not completely crumbling just yet, even as Dish lost 81,000 net video subscribers during the latest quarter.
Ergen said that, in the long-term, Dish would like to keep its spectrum and video business together but if regulators “won’t allow us to compete in the marketplace,” Dish may have to consider breaking apart the businesses.
