DISH Network (DISH) is up 32% over the last six months on speculation that it would win the right to sell phone service.
That wish has now been granted by the FCC so maybe it's time to sell.
DISH has been on a ride similar to that of Sprint (S), which has also been grabbing spectrum and rights to use it throughout the year. Sprint's situation is helped by Japanese entrepreneur Masayoshi Son's plans to purchase most of the company, detailed last month by Dividend Kings.
Both these deals are based on the idea that spectrum is a precious and limited commodity, and that the right to use spectrum is the right to print money.
It's not. The right to use spectrum is the right to compete for customers. But how many customers are available? Most are tied up in long-term contracts tied to the phones they use, almost all of them with Verizon (VZ) Wireless or AT&T (T). Sprint's results were badly hurt when it couldn't sell the iPhone, and the stock has improved since then but its results haven't.
Sprint has not made a profit in over a year. Over the last four quarters it has lost over $1.5 billion, on revenues of about $35 billion. Getting more market share requires spending a lot of capital, and it requires doing a lot of marketing, and it probably requires taking lower prices than its larger rivals.
Now DISH is going into that game, and we're supposed to cheer? Now DISH is faced with the costs of a build-out, and the costs of marketing, and the costs of maintenance on a terrestrial mobile network that may or may not prove competitive?
In fact, a quick look at DISH results show it's taking a Sprint-like path downward. The company managed to lose $273 million in its last quarter, as its revenue has plateaued while its efforts to expand have cost it cash. The company is already highly leveraged, with a debt-to-assets ratio approaching 70%. Its cash flow is accelerating, but that's not organic, that's financial leveraging at work.
In other words, DISH has to capitalize, in cash, on the advantages the FCC has just given it, and it has a very limited window in which to do that, at the same time Sprint is moving into the market, probably with Clearwire's spectrum in addition to its own.
A mobile data price war is about to break out, and these two are financially out-gunned.