DISH Network Corp (DISH) Knows Cord Cutting Is the Future

Acquiring Sprint could help DISH transition

If DISH is able to beat back SoftBank and acquire Sprint and/or Clearwire, it would make the company a better long-term investment. DISH already has some spectrum it acquired in 2008; it could combine this spectrum with Sprint’s network to build a nationwide, wireless Internet service.

As The Wall Street Journal has pointed out, some consumers are starting to cancel their home Internet service, and rely fully on their wireless provider. DISH could certainly capitalize on this trend.

DirecTV (NASDAQ:DTV)’s investment outlook

The other major satellite provider, DirecTV (NASDAQ:DTV), is largely in the same position as DISH — it relies on providing paid TV. If investors believe cord cutting is inevitable, DirecTV (NASDAQ:DTV) seems like a particularly poor investment.

Like DISH, DirecTV admits that cord cutting could threaten its business model. But unlike DirecTV, it doesn’t seem to be taking any actions to address it.

If you believe cord cutting is several decades away, then DirecTV might not be a bad investment — its price-to-earnings ratio of 13 is less than the broader market, it generates a fair amount of cash, and it engages in generous share repurchase programs. Moreover, its one of Warren Buffett’s largest holdings.

But, if cord cutting starts to emerge as a potent trend, DirecTV’s seemingly cheap stock could quickly become a value trap.

DISH’s bid for Sprint is a way to circumvent cord cutting

A lot of investors might doubt the inevitability of cord cutting — an overhyped threat, one that won’t materialize for several decades, if at all.

But DISH Network Corp (NASDAQ:DISH) doesn’t seem to be looking at it that way. If it’s able to acquire Sprint and/or Clearwire, it could combine those network assets with its own spectrum to offer a great wireless Internet service — one that could prevent it from falling victim to cord cutting.

If it can’t, then it — along with DirecTV — could one day find itself bleeding subscribers, having lost them to Internet-only alternatives.

The article DISH Network Knows Cord Cutting Is the Future originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.

Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends DirecTV. Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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