Dish, Verizon Spectrum Talks Might Heat Up By Q4, Says Citi
Negotiations between Dish Network ( DISH ) and Verizon Communications ( VZ ) over a radio spectrum sale might heat up after an ongoing government auction of airwaves is over, said Citigroup, which on Monday added the satellite TV broadcaster to its “focus list” of stocks. The Federal Communications Commission in late March began its Broadcast Incentive Auction of airwaves owned by local TV stations. The complex auction is expected to drag on until Q4, says Citigroup. Dish Network, meanwhile, has amassed some 77 MHz of radio spectrum, spending some $15 billion in the process, according to Citi’s estimate. Dish, however, lacks a wireless partner to deliver mobile video services. Citigroup maintains a price target of 94 on Dish stock. Shares in Dish have dropped over 30% since June, to near 50. Dish stock was up 1% in morning trading in the stock market today . Citigroup expects results of the current auction to reinforce the valuation of Dish’s airwaves. “Our target price values (Dish’s) spectrum at $36 billion, or roughly $1.78 per MHz-pop, less than the $2.09 per MHz-pop we believe Verizon would be willing to pay,” said the Citigroup report. “MHz per pop” refers to the spectrum available in a specific market. Citigroup analyst Jason Bazinet says Dish is more likely to sell, rather than “operationalize,” its spectrum by building out a wireless network. Wireless competition has intensified among AT&T ( T ), Verizon, T-Mobile US ( TMUS ) and Sprint ( S ). “Carriers that have filed to participate in the TV auction — like Dish and Verizon — cannot pursue M&A while the auction is underway,” wrote Bazinet. “But, they can enter M&A discussions after the auction ends. Since we expect the auction to end in Q4 2016, we expect the Street to ascribe some sort of M&A likelihood into their valuation calculus for Dish.”