Dish pitches EchoStar merger as a connectivity play

Dish Network and EchoStar will merge in a deal that is primarily about strengthening one of the companies’ financial position, but will also leave the combined entity in a stronger position in network connectivity.

The firms announced their all-stock merger on Tuesday, a month after the latest rumours on such a move surfaced. On completion of the deal, existing Dish Network shareholders will hold 69% of the resulting entity and EchoStar shareholders the remaining 31%. EchoStar’s current chief executive Hamid Akhavan will head up the merged outfit, while Dish CEO Erik Carlson will leave the company once the deal closes. Dish’s COO and head of Dish Wireless John Swieringa will keep his job, while Charles Ergen – co-founder of both companies – will serve as executive chairman.

The deal brings together Dish’s satellite services and streaming business, and its nascent mobile operation, including a growing 5G network that makes headlines aplenty, with EchoStar’s satellite communications solutions. In the companies’ own words, the result will be a “global leader” in terrestrial and non-terrestrial wireless connectivity.

Not only is non-terrestrial mobile connectivity a hot topic right now, the big name LEO satellite players having reignited the market in recent years, but it looks set to play a significant role in 6G mobile in future years. There’s a lot of talk in the industry about 6G effectively being a network of networks, including but not limited to mobile and satellite technologies.

That is perhaps a step too far for Dish right now. Unsurprisingly, it did not refer to 6G in its merger announcement, but it is keen to highlight the technological advantages this deal will bring. The merged entity will be well positioned to provide a broad set of communications and content distribution capabilities, it said.

“From unconnected individuals in the most rural and remote regions of the world to the constantly evolving networks of private enterprises and government institutions, the connectivity landscape is rapidly changing,” said Akhavan. “As a combined company, we will offer a broad suite of robust connectivity services, using a superior portfolio of technology, spectrum, engineering, manufacturing and network management expertise.”

Of course, being from the same stable, the companies could easily have found a way to work together and derive all of those benefits absent the merger. But there are arguably advantages to having all their assets under the same roof.

However, no matter how the companies pitch it, this deal isn’t really about combining technological capabilities at all. This deal about finance.

“This is a strategically and financially compelling combination that is all about growth and building a long-term sustainable business,” said Charles Ergen, Chairman of both Dish Network and EchoStar. “Dish’s substantial past investments in spectrum and its wireless buildout, combined with EchoStar’s recent launch of Jupiter 3, are expected to significantly reduce near-term capex requirements. The transaction is expected to generate significant cost and revenue synergies, and the strong asset portfolio of the combined company paired with its enhanced free cash flow generation capability and strengthened capital structure are expected to drive long-term value creation for our shareholders and other stakeholders.”

Essentially, Dish is in a slightly precarious financial position – amongst other things it has spent heavily on its 5G rollout – while EchoStar has little debt and plenty of cash.

The merger announcement came as Dish reported results for the second quarter of the year. It is still losing customers at both its pay TV and mobile operations; mobile customers fell by 188,000 in the three months to the end of June, while overall pay TV customers declined by 294,000, including losses at the traditional TV business as well as in streaming.

Revenue for the quarter was down by 7% year-on-year to US$3.91 billion, while the company’s bottom line contracted to $200 million from $523 million. It’s long-term debt is above $20 billion, and free cash flow for the first two quarters came in at a negative $808 million, impacted by customer declines and 5G network build.

That 5G build remains a great unknown for Dish. It is spending heavily to meet FCC rollout requirements for its cloud-native Open RAN network, hitting the 70% coverage mark in mid-June. But it needs customers. As it stands, most of its mobile customers are using either AT&T or T-Mobile US’s networks, thanks to MVNO deals. Dish recently added the iPhone 14 to its devices portfolio and brokered a plan sales deal with Amazon, but it needs to do more to compete with the market’s big three.

Thoughts of combined mobile and satellite networks are probably still some way off, but in the meantime Dish has done what it needs to do to help the finances stay healthy in teaming up with EchoStar. Maybe further down the line, the strategic benefits of the deal will become more visible.

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