Are Dish Network, Sprint, T-Mobile US Operations Really Worth "Nothing?"

While assigning a value to a company is always based on some key assumptions, the present circumstances surrounding valuation of Dish Network, Sprint and T-Mobile US illustrate the huge role of assumptions.

Dish makes its money from selling video entertainment services. Its value normally is a multiple of the recurring revenue stream. The same sort of analysis works for Sprint and T-Mobile US, even if the services sold by those two companies are mobile communications services.

But on a "sum of the parts" perspective, the valuations are skewed. Looking only at the possible value of spectrum assets, all three firms are worth less than the value of their spectrum.

Because of the historically-high values spectrum was sold for in the recent AWS-3 auctions, we have the unusual situation where, at least conceptually, all three firms are worth more, as holders of mobile spectrum, than they are as going concerns.

In other words, looked at only from a spectrum valuation perspective, all three firms have a market value based on their actual revenue-generating operations that is less than the value of the raw spectrum.

In fact, the value of the operations might be negative.

Spectrum represents perhaps 80 percent of Dish Network’s equity value, even if that spectrum does not generate any revenue at all for Dish, at the moment, and all revenue comes from its satellite video entertainment business.  

Lance Vitanza, a managing director at CRT Capital Group LLC, agrees that the likely value of Dish’s spectrum, which he estimates at $45 billion, is higher than the market value (roughly $36 billion) or the enterprise value of $40 billion of the entire company.

Then consider Sprint. About $17.5 billion is the value attributed only to some excess 2.5-GHz spectrum Sprint might sell.

Keep in mind that in September 2014, Sprint’s equity value was about $22.5 billion. In other words, Sprint could now be valued at less than its spectrum holdings.

Bloomberg Intelligence, in fact, estimate the total value of Sprint’s 2.5-GHz spectrum alone at $115.1, about 2.4 times Sprint’s enterprise value of $48 billion.

In fact, some argue that T-Mobile US  spectrum accounts for more than 100 percent of its total market value.

Those are anomalies, for certain. Few investors would actually assume that the operating value of the businesses really is worth less than the value of spectrum holdings. But that is how the situation might be construed.