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How High CanDish Jump?

Dish Network released a flurry of announcements
at the four-day International Consumer
Electronics Show confab in Las Vegas last week — a whole home
digital video recorder product dubbed the Hopper;
iPad apps; and content-streaming deals with Univision,
Lionsgate, Vivendi Entertainment and others for thousands
of hours of Spanish-language programming, family
and kids shows and movies; remote access deals for select
HBO and Cinemax shows. These were capped by a partnership
with satellite broadband provider ViaSat for wireless
high-speed Internet service.

“Up until now, broadband satellite has overpromised
and underdelivered,” Dish CEO Joe Clayton told the CES
audience of the new broadband partnership, according to
reports. “Not anymore.”

Dish also unveiled new logos and mascots in what Clayton
called a relaunch of the company.

“Today is a new dawn for Dish,” he added, according to
several reports. “We are basically relaunching our company
and re-energizing our brand, and we are well on our
way to transforming our company.”

Missing from the hype and hoopla was any additional clarity
on what has arguably been driving Dish stock for the past
year — its 40 Megahertz of wireless-broadband spectrum.

“I’m not convinced it’s a game-changer,” Wunderlich
Securities cable and satellite analyst Matt Harrigan said
of the Dish announcements. “It sounds like a little hype,
maybe 18 or 24 months before the substance.”


That “substance” is the building and launching of Dish’s
own broadband network, something the company has
been talking about since it spent
roughly $3 billion to buy up
spectrum from bankrupt
DBSD North America and
TerreStar last year. Dish
has said that it plans on
constructing its own video,
voice and high-speed data
network — most likely with
a partner — once it receives
the necessary Federal Communications
Commission approvals.

Dish and its mercurial chairman
Charlie Ergen have said publicly that
Dish ultimately wants to build its own wireless network
for voice and data service to bundle with its existing video
packages and has been stockpiling wireless spectrum
to do so.

While those deals would give Dish the needed capacity
for its own wireless-communications network, it first
needs to receive approval from the Federal Communications
Commission to transfer those licenses and obtain
necessary waivers. That approval is still pending.

Dish spokesman Marc Lumpkin said last week that the
ViaSat deal is totally separate from its spectrum holdings.

The FCC is currently reviewing the transfer of spectrum
licenses from TerreStar and DBSD. Once the deals are approved,
Dish will be able to begin developing its plans to
deliver voice, video and data services over the spectrum,
according to Lumpkin.

Ergen has suggested that Dish will use the acquired spectrum
to offer a mobile triple play of services. “Everybody in
this room wants fixed-wireless video, data and voice, and
mobile video, data and voice,” Ergen said in an interview
with the Denver Business Journal, at an October satellite
conference at the University of Colorado Law School. “We’re
trying to be the first company to do all of that.”

In the meantime, Dish has the ViaSat partnership,
which will help bring speeds up to 12 Megabits per second
— eight times current digital subscriber line rates — to the
8 million to 10 million homes without access to broadband
in the U.S. ViaSat could serve as a placeholder product as
the company builds out its wireless network.

But like the baby kangaroo — some reports said it was
actually a wallaby — Clayton cradled on the CES stage as he introduced the Hopper
whole-home DVR, looks can sometimes be deceiving.

Dish obviously had some new components to its announcements:
the Hopper can store up to 2,000 hours of
programming and offers a “PrimeTime Anytime” feature,
which allows customers to record all of the primetime programming
from the four major broadcast networks with
one click of the remote. But to some analysts, the announcements
were more a showing of how Dish is finally
catching up to its competition. Cable, telco and even
its chief satellite competitor DirecTV have had multiroom
DVRs for years. The same holds true for online content and
TV Everywhere.


Dish unveiled a slew of content deals at CES. On Jan. 9, it
reached an agreement for 3,000 additional kids and family
programming episodes for its Blockbuster@Home on demand
and online streaming service. That same day it announced
an agreement with Univision to carry Univision
Deportes, Univision Telenovelas, Univision Noticias and
exclusive carriage of Univision Deportes Dos,
as well as a streaming deal for thousands of hours of novelas
and Spanish-language movies for Blockbuster@Home.

Those streaming content deals were coupled with agreements
regarding TV Everywhere-like offerings— including
new on-demand and online off erings from HBO, enhancements
to the Dish Remote Access iPad app and an agreement
with mobile application developer Thuuz to create a Google
TV app to alert sports fans of big games coming up on TV.

Harrigan said the efforts by Dish could be a response to
competitor moves like Verizon Wireless’ recent agreement
to purchase wireless spectrum from Comcast, Time Warner
Cable and Bright House Networks (which includes a
future cross-marketing arrangement) and the belief that
AT&T and DirecTV could get more aggressive in their resale

On the surface, the ViaSat partnership appears to be
attractive — for $79.98 per month, customers would get
12 Mbps high-speed data service and an indeterminate
amount of video channels. Compare that to the $80 per
month that WildBlue’s current 400,000 customers are paying
for 1.5 Mbps service and it looks like a bargain.

But add the cost of installation (starting at $99), the need
for a separate satellite receiving dish and comparable offerings
from cable and telcos that range from $70 to $75 per
month and the Dish bundle looks a little less compelling.

“It sounds like these speeds are comparable to what you
can get on some of the lower-end cable systems, but it’s $80
a month,” Miller Tabak media analyst David Joyce said.

Pivotal Research principal and media & communications
analyst Jeff Wlodarczak said that given the market the two are
attacking with the product — the 8 million to 10 million rural
homes without any access to broadband — price may not be as
important a factor.

Bruce Leichtman,
president and
principal analyst
at Leichtman Research
Group, said
the key to the Dish
broadband offering
will be the level
of video offered.
So far, Dish has only
said that it will bundle
the ViaSat service
with a variety
of video packages.
WildBlue also said it
would relaunch its standalone service
on Jan. 16 — under the name
Exede — for about $50 per month.

“The key is what do you get for the
bundled service,” Leichtman said.
“Fifty dollars a month for broadband
service, no matter where
you’re living, is a pretty high price.”

Whether the Exede product —
scheduled for a February launch
on Dish — will be enough to satisfy
needs is still literally up in the air.
In the past, however, the 1.5 Mbps
WildBlue service has been hampered
by the 25.6-inch-high by
29.1-inch-wide size of its antenna,
as well as cost and reliability issues.
And like some cable broadband
services, it gets slower as more people
access the network.

Whether the ViaSat product is
merely a placeholder for a future
wireless offering or the final solution
for the company, investors seemed
to take the announcements in stride.
The stock rose less than 1% on Jan. 9
— 5 cents per share, to $28.79 each —
and was down 0.3% to $28.71 each on Jan.11. So far this year,
the stock is relatively flat, up 0.8% from $28.48 on Dec. 31.

That is in sharp contrast to last year, when spectrum
speculation and merger rumors drove Dish shares up 45%,
from $19.66 to $28.48 each.


That merger speculation still abounds, particularly with
AT&T or DirecTV as possible suitors, or the possibility
that Dish could partner with or acquire wireless carrier
T-Mobile, whose earlier attempt to merge with AT&T was
squashed by regulators.

Clayton has been candid about the possibility of a deal.
In several published reports, he has said that Dish would
be open to practically anything. He continued to fuel the
acquisition fire last week by stating to Bloomberg Businessweek
that Dish “could be acquired or we could be the acquirer,”
once its broadband net is built.

Until then, Dish will have to rely on its performance,
which hasn’t been that great over the past nine months.
Dish lost a total of 188,000 net subscribers from January to
September. In contrast, chief rival DirecTV added 537,000
net new customers in the first nine months of the year.
Dish’s financial metrics have been strong — revenue was
up 10.4%, EBITDA increased 37.4% and net income rose
64.2% in the first nine months of 2011, compared to 2010 —
but gross subscriber additions were down 20.4%.

Clayton has hinted that the fourth quarter will be better
— he has said that net subscribers will cross into positive
territory in the period — but analysts are split as to
what the quarter may hold.

“Clayton has said the trends have improved,” Harrigan
said. “I’m skeptical that it will all be that much better.”

Wlodarczak also is uncertain whether Dish will build out
its network alone, take on a partner or ultimately sell the
spectrum. Some analysts have said the spectrum could be
worth as much as $10 billion. But having those wireless licenses
gives Ergen and Dish a big piece of leverage, he said.

“Charlie is a smart guy and a great poker player,” Wlodarczak
said, referring to the Dish chairman’s well documented
past as a card sharp. “I think he’s going to do
something really interesting with [the wireless spectrum].
What it is, we’ll have to wait and see.”