Advance/Newhouse (A/N) filed its most recent Charter ownership disclosure last week, and with it we estimate that Charter repurchased $1BN of stock in 2Q19. This would be commensurate with the amount of repurchases in Q1; however, it is lower than our prior estimate of $1.5BN. Mgmt. is targeting leverage of 4.5x EBITDA; we believe they remain committed to this target. We estimate that Charter should repurchase $7BN of stock in 2019 to land at 4.5x EBITDA; the company needs to accelerate repurchases to meet this target. The company could have repurchased more stock than what is implied by the A/N filing. If the $1BN in repurchases proves accurate, we see three possible reasons for lower-than-expected repurchases this quarter: Continue reading “Charter Share Repurchases Likely Flat At $1BN In 2Q19”
There are some that may wake with a scream in a tangle of sweat-soaked sheets, haunted by images of finding themselves forever chained to Charlie Ergen, perhaps sharing a vital organ with him, perhaps finding him with his hand on the plug that powers their entire network, an expectant smile on his face.
We sympathize with the people that suffer these dreams. We imagine they are causing restless nights in places like Seattle and Bonn, and in a large penthouse apartment on the upper west side. It is not them that we are concerned with here. Here we are focused only on happy dreams.
What do the people who own DISH’s stock dream of?
They used to dream of a quick sale to Verizon or AT&T, at some spectrum value that was close to the value realized in the AWS-3 auction. Short dreams, delivering a quick jolt of pleasure, like the dreams of adolescent boys. Some still dream of this. And it could still happen. There isn’t much to say about these dreams. Their meaning is plain. Most people who dream of DISH now, have dreams that are more complicated. They might go something like this…
We’ve been writing extensively about the future role of 5G and how 3.5GHz spectrum feeds into that role. Unfortunately for some operators, 5G is just a pipe dream – particularly in a place like South Africa. Here, the government has not issued or auctioned off any spectrum for the last 14 years. In fact, South Africa has one of the lowest spectrum allocations of all markets globally. This should mean that the market has one of the lowest returns of all, as the operators all struggle to provide capacity for consumers. But this is where it gets interesting – the opposite has happened. The operators have merely kept data pricing at the highest level possible to limit capacity issues. Now the blame game begins. Whilst the government and the industry try blame each other, investors in Vodacom are likely to suffer the most (LINK). Vodafone, being the majority shareholder, should take note. In fact, we think Vodafone should consider whether spinning off Vodacom to its shareholders may make sense to give them the choice as to whether they should continue owning the asset.
Nothing seems to generate more discussion amongst investors at the moment than the future role of 5G, and within that, it is the 3.5GHz spectrum band that is currently at the nexus of the debate. Most of the leading global operators are hoping that 5G will lead to new products – and by virtue of this, new revenue streams – for example, only this week DT was lauding the benefits of using IoT to improve kitchen hygiene!: HERE. While we believe the route to monetising these new 5G services is unclear, we feel the leading operators should actually be watching over their back as 3.5GHz using massive-MIMO is allowing new challengers to emerge to challenge the existing wireless ecosystem.
Rakuten’s launch as a 4th MNO in Japan is among the most widely anticipated near term events in global telcos. But the impact is not well understood in our view. Market dynamics are opaque, and as a result many investors are overemphasising the anticipated turmoil among the established incumbents in our view. In order to try to clarify the likely impact we carried out a proprietary survey of 1,000 Japanese mobile users. We conclude two things: disruption (at least initially) is probably not particularly substantial and the company most likely to be affected in our view is DOCOMO. Softbank looks well protected, and has multiple levers to pull to continue to grow profits and the dividend through the initial launch phase.
According to press reports (LINK), the parties are nearing a deal in which DISH would acquire $6BN in assets from the merging companies (mostly spectrum & prepaid subs). Presumably, the asset acquisition helps establish DISH as a credible enough fourth carrier such that the DOJ can approve the deal. The state AG’s will then decide whether the divestitures and other conditions are sufficient to cure the competitive harms that they see arising from the deal. If the concessions are along the lines we discuss below, we think the concessions could weaken the state’s case enough such that they drop their suit or lose in court, but it will depend on the details of the concessions. Continue reading “T-Mobile / Sprint / DISH: What To Look Out For In A Remedy Package”
According to press reports this week, there are three contenders. The WSJ pegs DISH as the front runner (LINK), with discussions also continuing with the cable companies. And Adderton, Boost’s founder, perhaps backed by private equity, has expressed interest (LINK). There was early talk that Amazon might be interested, but that seems to have faded.
It isn’t surprising that all these characters might want to take advantage of the situation to capture assets, or access to assets, at below market prices. New Street would be in the bidding too, if the companies (and the DOJ) would only willing to consider a layaway payment plan. They may not all solve the DOJ and the companies’ problems though.
In this edition of the weekly review we explore how each of these companies might stand to benefit from the process, what they might be looking for, and how their participation might help cure the competitive harms caused by the deal.
How does the new 5G smartphone in my hand relate to the sunlit visions of 5G that I hear from politicians, the media and lobbyists? If 5G is our portal to a future of smart cities, smart factories and even a smart society, how does that begin with this shiny new device that, if I’m lucky, can download data at close to 1Gbps? (ten times faster than my tired old 4G phone that now sits idle).
Wholesaling isn’t a dirty word
Not many topics stir more fundamental debate within the sector than whether operators should voluntarily open up their networks to wholesale business or not. At New Street, we have ongoing debates between us in the office about whether operators really are better off doing it or not. There are so many variables at play: the opportunity of new high margin revenue streams – but what about the threat of losing retail customers, or causing damage to overall market pricing structure. Which one is bigger?
We hosted two conference calls last week during which Blair and I attempted to answer investors’ questions on the meandering course of the deal. In this note, we review where the deal stands today . In addition to links to our written work over the past week, we have included links to lightly edited audiocasts for both conference calls.