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DISH's Ergen Taking Bets on Wireless Hand

Ergen plays to the notion that investing in DISH is about confiding in the company's execution and capital planning. He also plays with a poker face.

When asked if there is a dollar limit to DISH's wireless strategy, he defers to economics. "I'm happy to spend $10 billion if we can get a 50% return on it every year. I wouldn't be happy to spend $10 billion if we get a 3% return on it every year," said Ergen on DISH's first quarter earnings call. "[Rest] assured that as a company we're going to go spend our money where we think we can get the greatest return," he added.

DISH's poker face also extends to regulators, who've cut down recent wireless ambitions. DISH Network is asking the Federal Communications Commission to allow it to develop its spectrum for mobile broadband use and Ergen is keen to remind the government that it has done little to solve an expected wireless data crunch.

Ergen is upfront about the implications of the wireless effort being blocked by the FCC: DISH could be forced to write off its $3 billion in spectrum S-band acquisitions and billions more in other wireless assets.

"We are not the first company that's kind of faced this proposition, but the reason we made the investment and have taken the risk is really because of what the President of United States has said, and what the FCC has said... We have a spectrum crunch," noted Ergen to analysts.

Ergen places DISH's odds at 80% for gaining spectrum approval, and starting construction of a mobile broadband network or partnering with a carrier.

The flip side of Ergen's confidence can be seen in recent FCC rejections of wireless ambitions.

In May, LightSquared -- a near $3 billion investment by hedge fund Harbinger Capital Management -- roamed right into bankruptcy after the FCC ruled against its strategy to build a 4G mobile broadband network using unused radio waves, citing interference with global positioning devices. The regulator also opposed a $39 billion merger between AT&T and T-Mobile to bolster spectrum and wireless service, citing antitrust issues. AT&T pulled the merger last December and took a $4 billion writedown.

Without an FCC approval in hand -- the regulator is expected to decide whether the spectrum can be used by the fall -- DISH won't say what it could spend on the network or if it has ulterior plans, citing the need to plan around regulatory guidance. Options include a multi-billion dollar spending plan to build a network that would drain DISH's free cash flow and require heavy financing, a sale of spectrum to needy national wireless carriers like AT&T, Sprint (S) or T-Mobile USA, or a mix of the two in a partnership with a carrier.

"It's more than likely that we would look to build a network in the most efficient way possible and that may mean doing something with a partner who already has something in place," said Tom Cullen, the executive charged with leading DISH's wireless push, in a July 13 interview.

"We don't see ourselves as speculators in spectrum," added Cullen, but he communicates a wide-open wireless strategy that is subject to the FCC's conditionality. "It is really premature for us to say what the next step is," he noted.
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