American satellite television company, Dish Network, today revealed growth from the second quarter of 2016 was more than what analysts were expecting. The good news about revenue growth was also met with a decrease in subscriber numbers, as Dish's Q2 customer adds from 2015 dropped from 638,000, down to 527,000 the same time this year. Net subscribers also declined by 281,000 over the quarter, compared with a 81,000 drop at the same time last year. When it comes to profits, Dish reported a number of $410 million, up from $324 million in Q2 of 2015, with revenue at $3.84 billion instead of the expected $3.85 billion. Dish has a problem: not only is the business adding fewer customers than before, but more are deciding to leave. The company started July 2016 with 13.6 million pay-TV subscribers compared with 13.9 million for the same time in 2015. In the supporting statement, the company explained that the pay-TV is being impacted by "increased competitive pressures," which it went on to detail as competitors' aggressive marketing and bundle deals, whereby companies offer a combined service including broadband, video and / or wireless services. However, the company's profits were improved through lower expenses - in particular the costs of acquiring customers dropped by 13% and the company also highlighted cheaper equipment, transmission and "subscriber-related" expenses.
Dish, however, is sitting on spectrum that is worth something. The broadcaster owns spectrum in the mid-range, which is arguably a compromise between the higher frequency airwaves that offer high performance and the lower frequency airwaves, that will help the carriers build a national network of solid coverage. Dish purchased coverage at the 700 MHz point in 2008 and FCC rules mean it must achieve 40% signal coverage by next year, or a 70% build out by March 2020. Dish needs to either shape up the network or sell on the spectrum. And the spectrum is worth something to the national carriers; the 600 MHz spectrum that is currently being repackaged by the FCC for the auction will not be available for two years whereas Dish's spectrum is available immediately, and could be used to bolster coverage. AT&T and Verizon Wireless are believed to be needing more spectrum sooner than the 600 MHz allocation is available. In the words of New Street analysts, "Verizon and AT&T can't retain their current 70% share of industry revenue with just 38% of industry downlink spectrum." Dish could be able to sell on its spectrum and allow whoever buys it to gain an upper hand in the coverage wars.
One potential issue for Dish is how deep AT&T and Verizon's pockets are. These two carriers will shortly enter a bidding war for 600 MHz spectrum and the FCC is opening up spectrum for 5G networks, too, which will all be making demands of the carrier. Carriers may need to decide what spectrum they are able to afford: the 5G high frequency, the 600 MHz low frequency or Dish's mid-range spectrum? If Dish is unable to sell on its spectrum, it will need to invest a considerable sum of money building out its network in order to see a return on the initial licence costs. The cost of building a network - even if it is essentially a sham of a network designed to pacify the FCC's rules - could run into billions of dollars.