Analysts Weigh in on Dish Network Broadband Internet Service Launch

[Satellite News 08-17-12] Pay-TV operator Dish Network may be planning to introduce a satellite broadband Internet service in the United States that will use capacity from an EchoStar satellite, according to a Bloomberg report published Aug. 17. The media outlet cited three unnamed sources, “familiar with the situation,” in confirming the rumor that the Internet service would be supported by the EchoStar 17 satellite.

   “The EchoStar 17 satellite, launched into orbit July 5, can support download speeds of 15 megabits per second, although introductory nationwide packages will probably offer rates of 5 megabits so the system can take on more capacity, said one of the people, who declined to be named because the plans are private. Dish and EchoStar can handle about 2 million new Internet customers with the service,” Bloomberg said in the report, quoting one of its sources.
   Analyst firm Zacks Equity Research added its own perspective to the rumor in a separate research blog post that was published Aug. 17. The firm said Dish Network would most likely launch the nationwide satellite-based broadband service between late September and early October 2012.
   “We believe from October 2012, Dish Network will offer bundled satellite TV and Internet to its customers and become a formidable challenger to large cable pay-TV and telecom service providers, which also offers triple-play video, voice and data services,” Zacks Equity Research said in the report. “Moreover, Dish Network is currently waiting for the [U.S. Federal Communications Commission] FCC nod to launch a nationwide high-speed wireless broadband network to offer mobile Internet and phone services to its customers.”
   Dish Network is already providing satellite Internet service via ViaSat’s network, offering connectivity speeds of as much as 12 megabits-per-second in certain parts of the United States. Dish Network has been trying to acquire assets required to launch an expanded version of this service for some time. As part of this long-term initiative, the company recently acquired spectrum and related wireless assets from TerreStar Networks and DBSD North America.
   “Using these slots of airwaves, the company can form a formidable video-on-demand service over a wireless network of mobile handsets, such as smartphones and tablets,” Zacks Equity Research said. “Today, cable TV and telecom operators have the technical advantage of being able to offer the ‘triple play’ package of video-on-demand, local HD, high-speed Internet access and telephony. The satellite TV operators, on the other hand, including Dish Network, cannot provide video-on-demand, Internet access or telephony as their platforms lack two-way interactivity (no uplink). The decision of Dish Network to launch satellite Internet service will solve this problem. Further, if the company gets the green signal from FCC to use its airwaves then the company can offer a unique quad-play bundled service of satellite TV; satellite Internet, mobile Internet and mobile phone services.”
   Dish Network would also have to consider how much it would invest in signing up new customers to the service, as its subscriber acquisition costs increased 75 percent year-over-year during its most recent fiscal quarter to reach $118 million. As a result, the company only lost 10,000 net subscribers in that three-month period ending June 30, as opposed to the 135,000 subscribers it lost during the same period in 2011. Its net income, however, dropped 32.6 percent from the $334.8 million in the 2011 second-quarter to $225.7 million in its most recent fiscal period, with revenues dipping slightly year-over-year from $3.59 billion to $3.57 billion.
   ISI Group Analyst Vijay Jayant wondered if the broadcaster’s subscriber boost was worth the price it paid for the result. “It appears that the subscriber improvement came at a cost. We believe Dish shares likely will underperform due to these results,” Jayant said in an Aug. 8 research note.
Sanford C. Bernstein & Co. Analyst Craig Moffett echoed Jayant’s assessment, stressing the need for Dish Network to encourage higher spending from its customers. “Investors in DirecTV have fretted that rising programming costs have doomed the U.S. business,” Moffet said in a separate research study. “Investors in Dish Network have, until now, posited a turnaround. It’s getting harder and harder to plausibly argue that this is a turnaround.”

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