Dish Network Earnings: Merging With EchoStar Suggests a Sharper Focus on Enterprise Customers

Recombining Dish Network DISH with sister firm EchoStar makes strategic sense and provides a modest improvement to Dish’s weak financial position, which continued to deteriorate during the second quarter. All else equal, the deal is slightly dilutive to our Dish valuation, but we are leaving our fair value estimate at $19, based on a sharp reduction in the firm’s planned capital spending and the potential for EchoStar to ignite growth in enterprise and wholesale services.

EchoStar owns a satellite fleet—including Jupiter 3, which was successfully launched at the end of July—and provides communications services, including internet access, globally. Consumers account for about 60% of revenue, but this business has been in decline recently as competition from Starlink and fixed-wireless broadband has grown. As a result, EchoStar has shifted its focus to the enterprise market. The firm has consistently generated positive cash flow despite heavy investment in Jupiter 3 and holds $400 million in net cash and investments. Management seems most excited to unify the companies’ S-band spectrum holdings globally, with the potential to expand EchoStar’s plans to launch a large low-earth satellite constellation and provide services to wireless carriers globally.

Dish’s most pressing concern now is whether to exercise an option to purchase low-frequency spectrum from T-Mobile. Despite T-Mobile’s claim that Dish faces an Aug. 11 expiration date, chairman Charlie Ergen doesn’t believe Dish faces a hard deadline as the firms continue to negotiate an agreement. Dish doesn’t have the capital to easily fund the $3.6 billion purchase price, but we suspect it has some negotiating leverage. If Dish doesn’t acquire the spectrum, T-Mobile would have to sell it at auction, with AT&T and Verizon prohibited from bidding. The spectrum could prove ideal for Comcast and Charter to quickly expand wireless network coverage and step up their efforts to steal wireless market share.