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Ergen is just unreal. He's an open book about his Company's valuation, yet the market is slow as death in assigning appropriate value to it!

 

The following soliloquy is phenomenal:

 

Yeah. Certainly from when we started looking at it really six years ago, it is quite a bit more important for any number of reasons but the first are the macro trends. The data usage is growing at exponential rates and that looks to continue in the foreseeable future, particularly with the growth of video which is going to be the biggest use of that. And the technology improvements and the amount of additional bandwidth that's available can't keep up with that demand curve as we see it. So spectrum, in fact, has become more valuable. The second thing is, is that working with the FCC we're able to now have the option to convert our spectrum to downlink spectrum and downlink spectrum – in the old days, everything was synchronous because all our voice calls were synchronous. We talked as much up as we talked down. But now the ratios have materially changed where it can be 6, 8, 10 to 1 downlink more than uplink. So downlink spectrum is more in demand. To give you an example: we have as much nationwide spectrum, or virtually the same nationwide spectrum today on the downlink side as Verizon does. And they have 100 million customers on their network. Our spectrum gets even better because we have two 20 MHz blocks and, of course, you know with LTE, the 20 MHz blocks is the sweet spot because that's the maximum throughput you can get in the LTE technology. And then from there, it's nationwide, so that means you get the same frequency nationwide so you're not all chopped up like a quilt with some PCS frequencies, on AWS frequencies, some 700, some cellular. It's all chopped up. Ours is nationwide in single frequency. And finally, it's virgin frequency, which means that any new technology or any new use you can put on that network from scratch. You can design it from scratch. And technology is changing in how you use spectrum. It also changes in how you use your core and how much smart you put on the tower and how you do all that. When you enter the marketplace with our spectrum, you're able to do that in a more efficient manner. Because 5G is not backward comparable to 4G, and 4G is not backward compatible to 3G, and 3G is not backward compatible to 2G and EDGE, and GPRS and all the different technologies that it's a hodgepodge of these things out there. The spectrum is very unique and so it's more valuable. And I think if there's one place that analysts get it wrong and the marketplace gets it wrong it's probably in valuing the spectrum. The good news for you is that it's going to be valued for you in the sense that there's another auction coming up probably in the fall for AWS three spectrum and that AWS three spectrum is adjacent to our spectrum so it's very similar spectrum to the spectrum we have today, and it will be 25 megahertz of download spectrum in that auction. And realize we own 50 megahertz of download spectrum, so you're going to get a pretty good market comparable in that option for what our spectrum is worth. And so I would say it's materially more valuable. Wi-Fi's going to continue to have, there'll be more public spectrum available. It's going to continue to have problems in terms of propagation, it's going to have interference and you're never protected with the quality of service and the consistency of service that you want to give to your customers and of course it's not going to be ubiquitous. It'll help and there are certainly strategic things that cable other people will be able to do with it but it's not going to replace the need for your own licensed spectrum so that you can give the quality service to customers. So that the long-winded answer but I think we that may be wrong but we'll have a better feel for the value of our spectrum from a financial point of view probably later this year but I think it will be materially different than what people are analyzing.

 

 

A combination with DTV and tax-efficient monetization of the spectrum at $2/MHz-POP would easily send the stock over $100. So much optionality here.

DISH_1Q14_CC.pdf

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Just spitballing a little while trying to get work done before I head home for the holidays...

 

http://seekingalpha.com/article/2638985-dish-networks-dish-ceo-joseph-clayton-on-q3-2014-results-earnings-call-transcript?part=single

 

Leon G. Cooperman - Omega Advisors, Inc.

Just for the record, Charlie, I'd say that I wish I had more guys that I could invest in with like you, so I'm fully prepared to put my clients' money and my money in your hands. My question relies around tax efficiency. We have no idea how spectrum will ultimately be used by DISH, or whether you sell some, keep it all, whatever. But have you thought about putting spectrum into a separate vehicle, where if a transaction occurred, that it would be much more tax-efficient for the -- for DISH?

 

Charles W. Ergen - Co-Founder and Chairman of The Board

Yes. That's as far as I can go. I'm looking at the attorneys, they're giving me the ax, but the answer is yes.

 

Leon G. Cooperman - Omega Advisors, Inc.

Okay. Well, good. I assume that you did and you are, and again, I'm more than happy to let you figure it out and do all the heavy-lifting.

 

Thomas A. Cullen - Executive Vice President of Corporate Development

Yes, Lee, this is Tom. I guess I would just say, we believe OTT spectrum and the core DISH business belong together at this point. But of course, we evaluate various structures that we could entertain, depending on how the market breaks.

 

Leon G. Cooperman - Omega Advisors, Inc.

Well, I may be off my rocker, but I think the spectrum you have could be worth as much as the entire market value of the company presently.

 

Charles W. Ergen - Co-Founder and Chairman of The Board

We can't comment on that one. I know I can't comment on that one. But I think we did spend -- I do think that if you go back to our last conference call, which was, what, August -- what month are we in now -- August or whenever that was, I think we articulated where we think things go.

 

http://online.barrons.com/articles/SB50001424053111904248904580003274042514274

 

OVER THE PAST 20 years of federal auctions, spectrum has sold for an average of $1 per megahertz-pop, according to Bazinet, the Citi analyst, who has closely studied spectrum transactions and carriers' capacity needs. Megahertz is a measurement of spectrum. The pop, or population, stands for how many people are covered by a spectrum license.

 

Dish now owns 56 megahertz of spectrum, all nationwide, meaning it covers 318 million people. At historical valuations, Dish's spectrum would be worth $17.8 billion, or 56 megahertz times 318 million people times $1. Dish, for what it's worth, paid $5 billion for the spectrum.

 

...

 

Bazinet values Dish's spectrum at $2.19 per megahertz-pop. It's not a crazy number. By stripping out the value of their operating business, Citi estimates that Verizon's spectrum is valued at $3.52 per megahertz-pop, with AT&T at $2.72.

 

Anyone think that Egren is going to use the spectrum to make a bid on T-Mobile (EV:$43 billion)?

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http://www.wsj.com/articles/dish-network-aims-to-leave-broadcasters-out-of-basic-online-tv-package-1418253124

 

Dish’s strategy reflects a new reality: there are more homes “cutting the cord,” or dropping traditional pay TV subscriptions. The satellite provider appears to be betting that it can appeal to those users with the new online service without making broadcast channels part of the basic package. Cord-cutters have the option of using an antenna to pick up over-the-air broadcast stations to complement other online fare like Netflix Inc. or Hulu.

 

Dish Chairman Charlie Ergen said last month that the number of people who “aren’t in the pay TV universe today,” including young people who never sign up in the first place, is “growing by 4 million or 5 million a year” and will “continue to grow and accelerate.”

 

 

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http://www.businessweek.com/articles/2015-01-05/dish-sling-tv-service-takes-on-cable-television

 

Dish’s big advantage is a deal with Disney, giving it access to ESPN’s channels, which are arguably a necessity to draw viewers away from cable. The basic Sling TV package offers about a dozen channels, including Disney, ESPN, Food Network, HGTV, TNT, CNN, and TBS. It also features Internet video from Maker Studios, which Disney bought for $500 million last March. Viewers will be able to pay extra for additional channels grouped by themes like sports or children’s programming. For years, Internet television services have struggled to get off the ground because they couldn’t get rights to content. The introduction of Sling TV is evidence that this is changing.

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I've been working off and on on Dish for the last couple weeks and have had a hard time coming up with a good value for the spectrum. Lots of articles talk about it could possibly be worth $20 Billion or so. Charlie Ergen in the last investor call says that the AWS-3 Auction that is going on now will give us a good idea of what it is worth.

 

Would love to hear if anybody had some good thoughts on valuing the spectrum?

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If you'll notice, I think most of those articles were printed prior to the AWS-3 auction, right? So they probably assumed the spectrum was worth around $1 per MHz-pop, which is what spectrum sold for last time around -- however, the AWS-3 auction has increased that number significantly.

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Yea they were before this auction mostly, so that has definitely changed now. I was just trying to find someone's math to a valuation and how they got there. It seems that Mhz-pop is the standard valuation metric:

 

Sales Price /(Mhz x Population) =Mhz-Pop

 

I'm having trouble figuring out the populations that the spectrum covers so can't really come up with a value that way either. Probably going to end up putting this in the too hard pile.

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OK wasn't sure if it covered the whole country. After reading some more FCC filings I confirmed that. Came up with what I think is a decent value of about $31 Billion for the spectrum.

 

Even this might be conservative. Here is a quote from Charlie Ergen on the Q2 2014 call:

 

"And the reason is because, obviously, we now have the advent of smartphones, we now have the advent of tremendous capacity demands on the network, particularly because of video, and that demand is almost all on the downlink side. And spectrum is typically auctioned off paired, uplink and downlink.

 

In the meantime, DISH has got the option to go all downlink with its spectrum. So we actually have about twice -- we have twice as much downlink spectrum, mid-band spectrum, as is going to be auctioned off in this auction. And as a result of that, it's not going to take a lot of really -- it's not going to take a real mathematician to figure out the value of this when this auction happens, and look at that paired spectrum and pretty much say whatever that value goes for, in general, DISH has probably got twice as much value on its balance sheet.

 

Current Spectrum auction 65 Mhz @ $44.8 Billion

 

Obviously this is coming from management but Ergen seems like about as straight a shooter as they come. I am concerned about what kind of deal DISH would get partnering with another company though. Would they really get the same value as the spectrum is auctioning for? I'm not sure on that one

 

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Craig Moffett - MoffettNathanson LLC

That's very helpful. If I could just ask one follow-up though, as it relates to that. So you talked a lot about spectrum comps, which I guess are an appropriate valuation methodology if you're going to be selling your spectrum. But I'm trying to reconcile how you think about the value of the spectrum as a commodity versus the present value of what you do with it if you put it to work. Because it sounds like what you're describing is putting it to work rather than in a transaction.

 

Charles W. Ergen - Co-Founder and Chairman

Yes, you've asked the fundamental question, Craig. You asked it the way, I think, the way we look at it. We look at the fundamental value. The floor value's what you could sell it for, right? So we're going to have an auction, whatever that auction goes for, multiplied by 2, that's the floor value, right?

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OK wasn't sure if it covered the whole country. After reading some more FCC filings I confirmed that. Came up with what I think is a decent value of about $31 Billion for the spectrum.

 

Even this might be conservative. Here is a quote from Charlie Ergen on the Q2 2014 call:

 

"And the reason is because, obviously, we now have the advent of smartphones, we now have the advent of tremendous capacity demands on the network, particularly because of video, and that demand is almost all on the downlink side. And spectrum is typically auctioned off paired, uplink and downlink.

 

In the meantime, DISH has got the option to go all downlink with its spectrum. So we actually have about twice -- we have twice as much downlink spectrum, mid-band spectrum, as is going to be auctioned off in this auction. And as a result of that, it's not going to take a lot of really -- it's not going to take a real mathematician to figure out the value of this when this auction happens, and look at that paired spectrum and pretty much say whatever that value goes for, in general, DISH has probably got twice as much value on its balance sheet.

 

Current Spectrum auction 65 Mhz @ $44.8 Billion

 

Obviously this is coming from management but Ergen seems like about as straight a shooter as they come. I am concerned about what kind of deal DISH would get partnering with another company though. Would they really get the same value as the spectrum is auctioning for? I'm not sure on that one

 

Imagine you're a potential buyer of spectrum, and you're looking to buy Dish's spectrum. What's your BATNA?

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Well at this point it is buying spectrum in the next auction. I believe that is in 2016. And that isn't a good proposition for them with how much the cost of spectrum has been increasing. They really don't know what they will have to pay for that spectrum. I'd say that is rather worrisome for the wireless carriers.

 

I'd say there is a very high chance that prices continue to increase because we aren't going to start using less data (smart cars, wearable s, mobile devices).

 

Even if their is some discount that DISH gets on the spectrum I still think it is worth slightly less than the market cap of the company, and maybe a lot more than that. Oh and you get the 5th largest video company thrown in for free, so that's cool.

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I guess I come up with $32.4 Billion. My discount on top of that would put it even lower (though I really don't think that is warranted)

 

50 Mhz of AWS-4 and H Block, 316 Million people, @ $2.00 (Jefferies reports $2.65 for the new AWS, but I haven't done my own MHz POP math on this auction)

 

E Block 6 Mhz, 230 Million people, @ $.60

 

I'm being super conservative, but I'll be happy with the result if things work out for the better.

 

 

 

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