DISH Network recently made waves in the broadcasting and wireless industry when it was announced that they are purchasing T-Mobile’s wireless assets. This deal allowed the T-Mobile and Sprint merger to finally get approval from the U.S. Department of Justice (DOJ). News like that would cause most people to expect to see DISH Network’s stock go up. As it turns out the opposite is true.
The Wall Street Journal recently reported that DISH Network’s stock dropped 25% following the news of their wireless purchase. That begs the question: What are DISH investors worried about? Experts speculate that the real worry is DISH’s balance sheet.
It’s rumored that DISH spent upwards of a billion dollars on their most recent purchase. Combine that with the fact that DISH itself has acknowledged that they will need roughly $10 billion to build their new wireless network, and that DISH only has $3 billion cash on hand. Those numbers just don’t add up, and investors are worried.
DISH CEO Charlie Ergen spoke with the Wall Street Journal about these concerns. “We know that we do need to strengthen our balance sheet, but we don’t need it tomorrow,” said Ergen.
DISH has been uniquely primed to become a wireless carrier even before it purchased Sprint’s wireless assets because they own billions of dollars worth of spectrum. That spectrum can not be used as part of their 5G wireless network.
DISH is reported to receive over 9 million Sprint’s cell phone customers, first dibs on any of T-Mobiles abandoned cell phone infrastructure and access to T-Mobile’s own wireless network while DISH is constructing its own. DISH will also receive a generous extension on the Federal Communication Commission’s (FCC) deadline to utilize their spectrum holdings.
That’s a big win for DISH given that many experts were worried about the company’s ability to meet that upcoming deadline. If DISH does fail to meet their FCC deadline they forfeit all of their spectrum holdings to the government.
In an effort to put stakeholders at ease, DISH assured everyone that they are able to buy Sprint’s assets with the money they have on hand. The debt will be incurred as they build the infrastructure they need to offer their own wireless services. As the value of DISH shares indicates, investors are not yet convinced.
Charlie Ergen is optimistic. “When you count cards, you’re able to recognize the deck is in your favor,” he said. “When the deck is in your favor, you bet big.”
This purchase is a big move for DISH. While investors may be worried now, if Ergen’s plan pans out they’ll be scrambling to scoop up shares in short order. It’s certainly a story to keep an eye on.
Sources:
https://www.wsj.com/articles/dishs-ergen-defends-companys-wireless-plans-11565119655
