DISH Network Suffers a Setback

Yesterday DISH Network Corp. ( DISH - Analyst Report ) reportedly suffered a setback as the Federal Communications Commission (FCC) has proposed a resolution, which will allow DISH to use its 40 MHz airwaves to deploy a nationwide wireless network with limited power. From late 2011, DISH Network was waiting for the FCC nod to launch a nationwide high-speed wireless broadband network to offer mobile Internet, voice and video services to its customers using its newly acquired satellite airwaves from bankrupt DBSD North America Inc. and TerreStar Networks Inc.

The FCC proposed that DISH may start installing its nationwide wireless network using a truncated power level than what the company is currently holding. A reduction in DISH’s frequency level is required to avoid interference with an adjacent PCS H Block frequency that FCC will put in auction in 2013. Sprint Nextel Corp. ( S - Analyst Report ) , the third largest telecom operator in the U.S. is desperately eyeing the PCS H Block frequency for its proposed expansion of 4G LTE network.

The FCC proposal will reduce DISH’s power and emission levels to establish a profitable venture in the wireless market. The company has spent over $2.9 billion to purchase wireless spectrums and has altogether spent more than $4 billion till now to pursue its wireless broadband ambitions.

Although the final verdict of FCC is yet to come, we believe the initial decision of the FCC Chairman clearly points to a preference for the LTE network of Sprint over a new entry by DISH in the wireless market. This may be because Softbank’s decision to purchase a majority stake in Sprint Nextel has given the company sufficient cash to pursue super-fast 4G LTE network and to become a formidable challenger to incumbent AT&T Inc. ( T - Analyst Report ) and Verizon Communications Inc. ( VZ - Analyst Report ) . On the other hand, DISH still keeps its decision open to either develop its own wireless network, which will increase competition, or collaborate with any existing wireless company, or just sell its airwaves for monetary gain.

Whatever be it, we believe a truncated deal for wireless network will be a huge setback for DISH especially when the company was trying to become a unique bundled service provider of wireless voice and data together with a state-of-the-art video distribution network. This combination was necessary for DISH in the face of severe competition in the pay-TV industry from telecom giants and online TV streaming providers, and DISH is no exception.

We maintain our long-term Neutral recommendation on DISH Network. Currently, DISH enjoys a short-term Zacks #3 Rank (Hold) on the stock.