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Analyst Blog

Yesterday, DISH Network Corp. (DISH - Analyst Report) received a shot on its arm as Moody’s Investors Service raised several credit ratings of the company. DISH’s corporate family rating was upgraded from “Ba3” to “Ba2”. The probability of default rating is raised from “Ba2” to “Ba1”, and debt securities rating upgraded from “Ba3” to “Ba2”. Moody’s confirmed an overall “Stable” rating outlook for DISH Network. However, all these upgraded ratings are still below the investment category of Moody’s.

Moody’s cited huge growing cash flow generation of DISH and its litigation settlement with TiVo Inc. (TIVO - Analyst Report) in favorable terms are the primary reasons for these rating upgrades. In May 2011, DISH Network and its sister concern EchoStar Corp. (SATS - Snapshot Report) has settled all their pending legal battles with TiVo Inc. related to patent infringement. DISH and EchoStar will pay $500 million to TiVo, of which $300 million was paid upfront and the remaining $200 million will be paid in six equal installments during 2012-2017.

In return, TiVo granted DISH Network a license under its Time Warp patent and certain related patents, for their remaining lives. Time Warp is an innovative technology that allows users to record one TV program while watching another. We believe Time Warp license will place DISH Network with its closest rivals within the satellite TV, cable TV, and telecom industry. TiVo already announced that it will also play a role in helping DISH Network to promote the Blockbuster digital video services.

During the first half of 2011, DISH Network generated $1,258.4 million of cash from operations compared with $1,115.9 million in the year-go period. Free cash flow in the reported period was $855.6 million compared with $578.6 million in the prior-year quarter. Quarterly operating income increased by 36.5% to $717.8 million, while operating margin rose to 20% from the year-ago level of 16.6%. Accordingly, the second quarter 2011 EBITDA of DISH was $935 million compared with $786.5 million in the year-ago quarter.

In March 2011, DISH Network got a bankruptcy court approval to acquire 100% stake of DBSD North America Inc. for a total consideration of approximately $1.4 billion. In July 2011, DISH got another court approval to acquire bankrupt TerreStar Networks Inc. for $1.375 billion. Each of DBSD and TerreStar provided a block of 20 MHz S-band spectrum to DISH for wireless networks.Additionally, the company itself owns a slot of highly demanded 700 MHz wireless frequency.

We believe management is trying hard to develop DISH as storage for spectrums that can be used to grow a viable pay-TV distribution network.The company already applied for FCC approval to deploy a high-speed wireless broadband network to offer mobile Internet services to its customers, which will enable DISH Network to deploy a hybrid terrestrial-satellite broadband network. Using these slots of airwaves, the company can form a formidable video-on-demand service over a wireless network of mobile handsets, such as smartphones and tablets.

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