Ergen's DISH Forges Ahead Despite Setbacks

Ergen's DISH Forges Ahead Despite Setbacks

DISH Network's earnings showed results that were roughly in line with, if a little below, analyst expectations. Net subscriber growth was minimal, while on a per-user basis things gained respectably. The financials were not the main story, though, as the company's quest for a wireless solution continues to add depth. Coming a week after competitor DIRECTV management mentioned its interest in a merger, DISH acknowledged the possibility but showed preference for other near-term solutions. With increasingly clarity as to the future of DISH's multibillion-dollar network effort, is the company a buy today?

Revenue came in slightly ahead of the year-ago quarter, at $3.61 billion, but below analyst expectations. The company posted a loss of $0.02 per share on the bottom line due to some big up-front expenses for acquired satellites. Average revenue per user, the go-to metric for established subscribers, rose an impressive 5% during the quarter, hitting $80.90 per customer.

As is well known by now, DISH took a different tack than its competitor DIRECTV by looking toward the future of the video-delivery business instead of growing its core operations. While DIRECTV has gained hundreds upon thousands of new subscribers in the still-nascent pay-TV market of Latin America, DISH has been acquiring spectrum, negotiating with a long list of potential (and since failed) partners, and convincing the government it should be a new entrant in the bundled telecom space.

DISH's short-term results are rather unimpressive, though by no means is the company suffering while it chases down a solution to its wireless conundrum. If the company is able to pen a great deal, via a wireless share agreement with the likes of Sprint or a merger with DIRECTV, it will unlock value in the company and likely send the stock price with it. So where do we stand on the deal flow?

Deal table
In management's conference call this week, Chairman Charlie Ergen noted that pursuing a share agreement, whereby DISH basically piggybacks on Sprint's existing network and pays it a fee, would be a preferable approach at this point, since the company failed to buy both Sprint and Clearwire.

Ergen said, "How do you put communications, inside the home and outside -- how do you put that together into one national company?" The company's question is a complicated one, but DISH looks about as suited to tackle it as any.

On the other end, merging with DIRECTV would address a different issue, one perhaps more pressing than DISH's network buildout -- maintaining affordable prices in the face of rising programming costs. Ergen, similar to Liberty Media billionaire John Malone, believes that the industry changes will strongly encourage consolidation, in order to keep end user costs at a reasonable level.

DIRECTV CEO Mike White was quite bullish on the idea last week during his firm's conferenece call, and Ergen is clearly open to the idea as well, if perhaps less eager.

Whatever the case, it looks like DISH will, one way or another, find a way to leverage its recent efforts. At just under 20 times forward earnings, the company is more richly valued than its competitor (DIRECTV trades at just above 10 times forward earnings), but perhaps the market has already factored in the potential of DISH's network buildout.

Simply put: A bet on DISH today is a bet on Ergen's ability to forge the next evolution of the telecom industry.

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