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UPDATE 1-Dish to face smaller challengers in U.S. airwaves auction

Alina Selyukh
Wednesday, 4 Dec 2013 | 5:19 PM ET

WASHINGTON, Dec 4 (Reuters) - Satellite TV provider Dish Network Corp will compete against smaller wireless carriers and individuals when the U.S. Federal Communications Commission auctions spectrum on Jan. 22, the agency said on Wednesday.

The FCC will auction the so-called H Block frequencies in the first opportunity the regulator has offered companies to acquire ownership of new airwaves since 2008.

Dish, a company known for aggressive moves, is the largest and most formidable of the 34 applicants who indicated an interest in bidding for ownership of airwaves in some geographic areas, according to new FCC documents.

The H Block spectrum is adjacent to some frequencies already owned by Dish, meaning the satellite TV company could end up in control of a valuable contiguous slice of airwaves.

Dish, co-founded and run by Charlie Ergen, has been aiming for an expanded role in the wireless industry. Acquiring the H Block spectrum promises to be a critical boost, although what Ergen plans to do with it remains a mystery.

"Clearly he thinks that's going to open doors for him," said Macquarie analyst Amy Yong, who estimated that securing H Block spectrum would add at least $3 per share to Dish's value net of costs. "It creates a lot of optionality for him. That's really the right way to look it."

Earlier this year, Dish had pledged to bid $1.56 billion for the spectrum if the FCC gives it more flexibility on how fast and how to use some of the spectrum it already has.

The FCC has yet to make such an agreement, but that amount became the auction's base price, meaning the auction will not close until the FCC has raised $1.56 billion.

The auction's proceedings are required to help fund a new network for emergency communications. The applicants now have until Dec. 18 to make certain upfront payments that will indicate the scope of their participation in the auction.

Other than Dish, applicants included Mississippi-based C Spire, Virginia-based wireless company nTelos Holdings Corp , other regional and rural providers and several individual investors, documents showed on Wednesday.

Sprint Corp and T-Mobile US Inc recently said they had decided not to participate in the auction. The top two wireless providers Verizon Communications Inc and AT&T Inc were not expected to be interested in the H Block spectrum.

DISH STRATEGY

On Dish's quarterly earnings call in November, Ergen said he would look for ways to use wireless spectrum to enhance Dish's video offerings rather than on areas such as voice, data and texting services.

Otherwise Ergen said that he was keeping all options open, from the possibility of a purchase of No. 4 U.S. mobile operator T-Mobile US, to forging a partnership, building a wireless network or even selling Dish's spectrum.

"Whatever they end up doing, whether they merge or do some network sharing agreement or offer their own service in some capacity, it will have more value if it's contiguous," said Stifel analyst David Kaut.

Dish, which applied for the auction as American H Block Wireless LLC, declined comment on Wednesday.

Dish's potential entry into wireless has captured the imagination of investors who see a chance for it to transform into something other than a pay TV provider, less beholden to the rising programming costs that bruise its margins.

Earlier this year Dish fought, and lost, a battle with SoftBank Corp to take over Sprint and smaller operator Clearwire Corp. It is now also fighting for the spectrum owned by bankrupt LightSquared, submitting a baseline bid of $2.2 billion for them in the auction expected later this month.

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