Dish to Review S-Band Alternatives if Waivers Require Rulemaking, Says Ergen

Dish Network’s wireless aspirations are contingent on a quick FCC approval of the company’s S-band applications, said Dish Chairman Charles Ergen during the company’s Q4 earnings call Thursday. A rejection or delay in approving Dish’s applications to use mobile satellite spectrum terrestrially would force the company to revisit its interest in joining the wireless business, he said. Ergen spoke at length about the FCC and its consideration of Dish’s purchase of TerreStar and DBSD and associated waivers of MSS rules.

Dish seems to be increasingly worried the agency will look to a rulemaking to decide the issue. Ergen met Wednesday with aides to FCC Chairman Genachowski, Wireless Bureau Chief Rick Kaplan and International Bureau Chief Mindel de la Torre, according to an ex parte filing (http://xrl.us/bmtzta). A grant of the requested waivers wouldn’t prevent a broad mobile satellite service rulemaking, the filing said. “However, a rulemaking alone -- without the requested waivers -- and the inherent uncertainty of outcome and significant delay that would be associated with a rulemaking would introduce substantial risk into DISH’s business plan,” said Dish. The company has said it’s willing to take on buildout commitments beyond what it described in its applications.

Ergen compared the FCC’s consideration of its applications for waivers and transfers of control to the launch of the company’s first satellite. A delay or failure of that launch would likely have meant keeping Dish from entering the video business, which could be true today of the wireless business, he said. “I think we have an 80 percent chance or better of being very successful with the spectrum we've accumulated” and now the FCC can either make or break Dish’s entrance into the market, said Ergen. The delay of the FCC deciding on the waiver request within a rulemaking would force Dish to “consider the risk” and it would “have to look at other alternatives of what to do with the business and the spectrum,” he said.

LightSquared’s inability to begin service is a “positive for where we're trying to go,” in that Dish can offer new spectrum, said Ergen. While Dish is ready to “go it alone,” as with its DBS business, there are opportunities for partnership, meaning network sharing or “any variety of shape.” But “you have to be in the game” to do that and “we are not in the game right now,” Ergen said.

"Washington picks winners and losers all the time,” said Ergen. “The reason we made the investment really is because of what” President Barack Obama and the FCC have said about the “spectrum crunch,” concerns for companies “hoarding cash and not making the investment” and the need for competition within the wireless business, he said. The company is ready to go “full force” into the wireless business, transforming Dish and the wireless market, he said. Based on the FCC’s self-imposed 180-day shot clock, an FCC decision is expected by March 12.

Dish’s settlement with Sprint over broadcast auxiliary spectrum costs (CD Nov 7 p1) points to Dish’s concerted effort to pave the way for its wireless service, said Dish. “By clearing up that multiple-year issue that was hanging over the S-band, we think that deserves consideration as well,” said Stanton Dodge, Dish general counsel. The Sprint settlement was necessary as it was an obstacle for approval, though the payment -- around $114 million -- will be “a waste of money” if Dish can’t get into the business, said Ergen.

"There’s a high correlation” between Dish’s wireless efforts and its current business, and without the ability to offer wireless “you've got to look at all alternatives in terms of where you would go long-term,” he said. The DBSD/TerreStar deals are very important to the company as a way to compete against Verizon, AT&T and cable companies, he said. The S-band is really the “country’s best hope” for bringing spectrum quickly to the marketplace, which gives Ergen some hope, though the company has done poorly in predicting how the government will act, he said. The government will prevent competition by being too cautious and not making decisions, he said. Wells Fargo analyst Marci Ryvicker said she took Ergen’s comments with “with a grain of salt” because he’s in negotiations with the FCC.

Ergen’s concerns may be a combination of posturing and true concern for an open-ended rulemaking process, said Dave Kaut, an analyst at Stifel Nicolaus. The FCC seems clearly interested in making that spectrum available for broadband use, but the question remains if the agency can give Dish its approvals within the company’s “magic timeframe,” the deadline for which Dish considers approval necessary, he said. A signal from the FCC that it could finish a rulemaking relatively quickly would also give Dish clarity on the issue, said Kaut.

Dish reported revenue of $3.63 billion for Q4 2011, a 13 percent increase compared with the same period in 2010. Net income in the quarter grew 24 percent to $313 million compared with $252 million in Q4 2010. The company added 22,000 net subscribers in the quarter.