3 rd Annual Case Competition Yale Graduate Consulting Club April 4, 2014 Dish Mobile A New Horizon for Satellite Broadcasting

3rd Annual Case CompetitionYale Graduate Consulting Club

April 4, 2014

Dish MobileA New Horizon for Satellite Broadcasting

Though lucrative in the short term, regulatory issues likely to prohibit horizontal merger with DirecTV.

Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation

Recommendation

Strategic merger for long-term growth through wireless bundling and streaming of video content.

Sources: FCC, Moffett Nathanson, DISH & NFLX 10-K

Market Analysis


MVPD Market Breakdown 99.3 mn

DBS has no growth for the last 3 years

Over-The-Top Streaming is Growing Rapidly

20.1

14.1

21.912.1

4.5

4.1

4.9

4.8

Market Analysis


The pay-TV industry has reported its worst12-month stretch ever.“

“Craig Moffett and Michael Nathanson, Media Stock Analysts

Market Analysis


Charlie Ergen to D: Dive Into Media

I think people are cutting the cord, I believe it is less risky, long-term, to embrace change.“

“

Cash:Debt ($9.74 bn:$13 bn)H-block spectrum @ $ 1.5bn + $ 4.5 bn in other spectrum

No infrastructure for acquired spectrum Saturated pay-TV market

Dish Strategic Advantage


Sources: Dish & DTV 10-K Financials

Dish experienced large decreases in revenue growth

Dish Pay-TV Net Additions(Thousands)

STRENGTHS WEAKNESSES

Strategy: A Time for Change


Current EffortsExpand to New Markets

Future DirectionsMerge to ensure long-term growth

and create synergies

Valuation

We valuate that DirecTV is worth $59.06 bn @ $80.55 /share.Other estimates range from $57 bn - $80 bn

We propose a stock-stock exchange : 1 DirecTV = 1.17 Dish-DirecTV


Dish + DirecTV Merger

Sources: Valuentum Equity Research

Market Share 14% 21% 34.1%

Customer Base 14 mn 21 mn 34 mn

Revenue $ 13.9 bn $ 31.8 bn $ 43.7 bn

Horizontal Merger


Dish + DirecTV Merger


Pros Cons

Synergies of $2.3 bn- Operation Efficiencies- Technology Innovations- Satellite Consolidations- Marketing & Ad Expenses

Uni-dimensional Satellite Pay TV Profile: A horizontal merger.

South and Latin American expansion FCC regulatory hurdles

Increased negotiating power

PROS CONS

“

Former FCC Chairman Michael Powell in Dissent of the Dish-DirecTV merger of 2002

The combination … would have us replace a vibrant competitive market with a regulated monopoly.“


FCC & Dish + DirecTV Merger

MVPD Constraints HHI Increase

Current MVPD 363

MVPD + Over the Top 183

34.2

21.912.1

4.5

4.1

4.9

4.8


Introducing Dish Mobile

Source: TVEverywhere.com

Switch to Dish Mobile today to enjoy uninterrupted internet everywhere!


Introducing Dish Mobile

The Bundle Goes Mobile“

“

InternetTV

Phone

Dish T-Mobile

Satellites in orbit Cell towers and mobile infrastructure

$6 bn spectrum in H block, 700 MHz band and others

Mobile phone spectrum for voice, data

TV infrastructure and programming contracts

INTERNATIONALCOVERAGE!!

NO MORE WIRES!

Valuation

We valuate that T-Mobile is worth $29.00 bn @ 38.54 /share.Other estimates range from $26 bn - $36 bn

We propose a stock-stock exchange : 2.09 T-Mobile = 1 Dish Mobile


Dish + T-Mobile Merger


Market Share 14% 13% (wireless carrier) 14% + 13%

Customer Base 14 mn 43.4 mn 57.4 mn

Revenue $ 13.9 bn $ 24.1 bn $ 38 bn


Dish-Mobile Growth Projections

Historical Data: Dish & T-Mobile Quarterly Reports

Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendations

Summary of Recommendations

Though lucrative in the short term, regulatory issues likely to prohibit horizontal merger with DirecTV.

Strategic merger for long-term growth through wireless bundling and streaming of video content.

[1] Dish Annual Report 2013[2] DirecTV Annual Report 2013[3] FCC 15th annual report for MVPD Market[4] Dish Fiscal 2014 quarterly report[5] DirecTV Fiscal 2014 quarterly report[6] Financial Statements for Dish, Inc. - Yahoo Finance[7] Financial Statements for DirecTV, Inc. – Yahoo Finance[8] WSJ research report for DISH and DTV[9] T-Mobile Annual Report 2013[10] T-Mobile Fiscal 2014 quarterly report[11] IBISWorld Industry Report on Mobile Carriers[12] IBISWorld Industry Report on PayTV[13] Professor Robert F. Bruner Valuation Analysis[14] Macabacus Valuation Spreadsheets

Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendations

References

3rd Annual Case CompetitionYale Graduate Consulting Club

April 4, 2014

Appendix


Pay TV Market Trends

MVPD Market Analysis


Source: National Cable and Telecommunications Association


Cable Price to CPI

You now pay 48% more for Expanded Basic than you did in 1986*


Broadband Deployment

Market Analysis Strategy Dish + DirecTV Dish + T Mobile Recommendation

Potential Global Markets

Source: Rethink Technology Research


Mexico & Latin America Satellite TV Figures


WACC

Dish DirecTV

Discount rate = Rf + MRP*Beta(Assets)

Rf 2.72% Rf 2.72%

MRP 6% MRP 6%

Beta(assets) 0.96 Beta(assets) 0.72

Discount rate 8.49% Discount rate 8.07%

E 28.32 E 38.61

D 13 D 18

C 10 C 2.3

Beta(Equity) 1.05 Beta Beta(Equity) 0.93

Beta (Assets) 0.96 Beta(Debt) 0.2

Beta (Assets) 0.72


Valuation Dish

Perpetual Growth Rate = 2.20% Perpetual Growth Rate = 2.70% Perpetual Growth Rate = 3.20%

Discount Rate 8.00% 8.50% 9.00% 8.00% 8.50% 9.00% 8.00% 8.50% 9.00%

FCF over Projection Period

11,745.0

11,496.4

11,256.2 11,745.0 11,496.4 11,256.2

11,745.0

11,496.4 11,256.2

Terminus 16,945.8

14,930.7

13,241.2 18,635.2 16,297.2 14,362.0

20,676.6

17,921.4 15,676.1

Company Value 28,690.8

26,427.1

24,497.4 30,380.2 27,793.6 25,618.2

32,421.6

29,417.9 26,932.3

Company Value Attribution

% Value in Projection Period

40.9% 43.5% 45.9% 38.7% 41.4% 43.9% 36.2% 39.1% 41.8%


Valuation DirecTV

Perpetual Growth Rate = 2.20%

Perpetual Growth Rate = 2.70% Perpetual Growth Rate = 3.20%

Discount Rate 7.50%

8.00% 8.50% 7.50% 8.00% 8.50% 7.50% 8.00% 8.550%

Company Value Calculation

FCF over Projection Period 25,282

.6

24,211.1

23,210.3

25,282.6

24,211.1 23,210.3 25,282.6 24,211.1 23,210.3

Terminus 41,444

.4

31,928.0

25,252.8

45,985.4

34,850.1 27,242.3 51,582.5 38,323.5 29,547.6

Company Value 66,727

.0

56,139.1

48,463.1

71,268.0

59,061.2 50,452.6 76,865.1 62,534.6 52,757.8

Company Value Attribution

% Value in Projection Period 37.9%

43.1% 47.9% 35.5% 41.0% 46.0% 32.9% 38.7% 44.0%


HHI Calculations

MVPD Market Pre-merger Post-merger New HHI

Current Market 1755 1940 185

Comcast/TWC Merger Market 2463 2648 185

With Streaming Pre-merger Post-merger New HHI

Current Market 1573 1936 363

Comcast/TWC Merger Market 1912 2276 364

>100 = highly competitive; >1500 = unconcentrated; >2500 = moderately concentrated; <2500 = highly concentrated

Increases over 100 provoke scrutiny by the DoJ


Valuation Dish + DirecTV

Pro Forma Earnings Impact 2013 2014E 2015E 2013 Contribution Analysis Dish DirecTV

Dish's Stand-Alone EPS $5.75 $5.98 $6.22 Revenues 30.4% 69.6%

Dish + DirecTV's Combined EPS $3.83 $3.91 $4.15 EBITDA 36.8% 63.2%

Accretion / (Dilution) -33.3% -34.6% -33.3% Dish + DirecTV Shares 530.0 509.0

% Ownership 51.0% 49.0%


Comparison of Wireless Carriers

33% Market Share 30% Market Share 17% Market Share 10% Market Share

$33.2B $31.1B Revenue $7.2B Revenue $5.3B Revenue

$90/Month $110/Month $80/Month $70/Month

Source: IBISWorld; WSJ


Operational Efficiencies

Operational Efficiencies 2.3 2.8

Components Satellite SalesWorkforceMarketing

Market PromotionMarketing

2.3 bn =

0.7 bn from reduced marketing expenses0.4 bn from satellite divestment0.5 bn from improved contract negotiations0.7 bn from reduced employees

2.6 bn =

2.0 bn increased sales (bundling)0.2 bn divestment of Airwaves0.4 bn New Technologies?

Dish + T-Mobile Merger


Source: Cisco, 2013

It's going to be hard to convince consumers that reducing four firms to three is actually going to improve competition for their benefit.

“

About Sprint & T-Mobile Merger, William J. Baer, Assistant to the Attorney General

“

T-Mobile Subscriber Growth

Net

Ad

dit

ion

s (t

ho

usa

nd

s)

Assumptions

- Quarterly EBIT tracks inflation

- 80% bundling discount

- 5% sign-up crossover/qtr


Bundling Projection Assumptions


Valuation Dish + T-Mobile

Pro Forma Earnings Impact 2013 2014E 2015E 2013 Contribution Analysis Dish T-Mobile

Dish's Stand-Alone EPS $1.89 $1.33 $1.35 Revenues 36.6% 63.4%

Dish Mobile's Combined EPS $0.70 $0.69 $1.39 EBITDA 49.0% 51.0%

Accretion / (Dilution) -62.9% -48.3% 2.5% Dish Mobiles Shares 945.9 802.0

% Ownership 54.1% 45.9%

Documents

3 rd Annual Case Competition Yale Graduate Consulting Club April 4, 2014 Dish Mobile A New Horizon for Satellite Broadcasting