Charlie Ergen, co-founder of Dish Network and the EchoStar family of business, might just have badly timed his latest venture.
Analysts at MoffettNathanson (MN) aptly described Ergen’s position a “petri dish” of challenges, saying that Ergen’s entry into the pre-paid wireless business would have been challenging even under the best of circumstances. These aren’t the best of circumstances. Sprint’s Boost – which Ergen is acquiring – was already beset by sky-high churn even before the coronavirus crisis. Its customers skew towards lower income, urban, and, now (presumably) unemployed. “Welcome to the wireless business,” says MN.
The analysts admit that they were never wholly convinced by Ergen’s plan to build a 4th national wireless network, but add that it is “even harder now”.
“Dish’s subscription businesses – a satellite TV business that has always positioned itself as Pay TV’s budget option, and a pre-paid wireless business that caters to urban lower-income – will face a particularly challenging path,” says MN’s report.
“As Dish’s credit spreads have widened, the cost of funding the network has risen, lowering whatever would otherwise have been the project’s NPV. And the odds that Dish will be able to attract a strategic partner have fallen (although we’ve never thought that was a realistic expectation, either). Even if one believed their network could be built for just $10 Billion – we expressed our skepticism on this score, as well – at Dish’s current cost of debt, the financing costs of building the network would consume about half of the cash flow generated by their faltering satellite TV business,” says MN.
“And their satellite TV business will suffer in the recession as well. With no sports on the air, and with soaring unemployment, Americans will inevitably search for costs they can shed. As with pre-paid, Dish is disproportionately skewed to lower credit quality consumers,” they add.
However, most recognise Ergen as a skilled poker player and a Master at second-guessing the market. MN are not convinced. They bluntly state there is “no floor” for Dish’s equity, and slash their Target Price for Dish to just $15 a share (from $30 previously).