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DISH Network Suffers a Setback

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Recently, DISH Network Corp. (DISH - Free Report) suffered a setback as Standard & Poor’s Rating Services (S&P) lowered its outlook on the company to Stable from Positive. The rating agency cited growing leverage of DISH coupled with uncertainty related to its wireless venture, as the primary reasons for this outlook downgrade. However, the S&P reiterated its existing corporate credit rating of DISH at “BB-“, which is three notches into the rating agency’s junk category.

Although DISH received the FCC approval to deploy a nationwide wireless network, it came with a restrictive condition. The FCC stated that DISH may start installing its nationwide wireless network using a truncated power level than what the company was initially holding. A reduction in DISH’s frequency level is required to avoid interference with an adjacent PCS H Block frequency that FCC will auction in 2013.

DISH’s plan for the wireless spectrum is not yet clear. Management said it may try to collaborate with several established telecom or tech companies to jointly establish a wireless network or it may even sell its airwaves for simple monetary gain. Recently, DISH decided to raise $1 billion of debt for general corporate purposes, which may include wireless and spectrum-related strategic transactions.    

In Jan 2013, DISH offered to purchase the remaining 49% stake of 4G WiMAX wholesalers Clearwire Corp. for $3.30 per share. In Dec 2012, Sprint Nextel Corp. (S - Free Report) , the 51% shareholder of Clearwire, proposed a $2.97 per share bid to acquire the remaining 49% of Clearwire. DISH’s proposal has a total consideration of $5.15 billion and includes several conditions.

DISH is the second largest satellite TV operator in the U.S. after DIRECTV Inc. . The pay-TV market is quickly becoming saturated and is highly competitive. In order to diversify its business model, DISH has decided to enter into the wireless market. Currently, DISH has a Zacks Rank #3 (Hold).  

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