Fitch Affirms DISH's IDR at 'BB-'; Revises Outlook to Negative

Fitch Ratings affirms the 'BB-' Issuer Default Rating (IDR) assigned to DISH Network Corporation (DISH) and its wholly owned subsidiary DISH DBS Corporation (DDBS). Fitch has also affirmed the 'BB-'rating assigned to the senior unsecured notes issued by DDBS. The rating Outlook for all of DISH's ratings has been revised to Negative from Stable. As of Sept. 30, 2011, DISH had approximately $8.4 billion of debt outstanding.

The Negative rating Outlook encompasses the capital and execution risks associated with DISH's wireless strategy. While DISH has yet to fully articulate its wireless strategy, the company has committed nearly $3.5 billion of capital to acquire wireless spectrum (acquisition of licenses acquired in 2011 are pending regulatory approval). Fitch believes the incremental capital and operating costs associated with a potential wireless network build out will diminish DISH's ability to generate free cash flow, erode operating margins resulting in a weaker credit profile and pressuring the current ratings. Fitch believes the business risk inherent in launching a wireless business limits the flexibility the company has to increase leverage at the current ratings to accommodate the incremental capital costs and EBITDA erosion associated with the launch of a wireless network. Construction of a stand alone wireless network would have additional negative rating implications.

DISH's management has indicated the company prefers to leverage its spectrum holdings (pending regulatory approval) and partner with an existing wireless network operator to construct a new 4G network. A partnership in Fitch's view would reduce the capital costs and execution risks associated with building a greenfield network and would be more balance sheet efficient. A wireless network may better enable DISH to address the competitive forces within the mature multi-channel video programming distribution market; notably the increasing utility of portable and mobile devices, the emergence of IP based video distribution and the expected migration to cloud based services.

Fitch believes the company's overall credit profile is relatively strong within the current rating category considering the business risks attributable to DISH's core operations and the current rating has sufficient flexibility to accommodate DISH's inconsistent operating performance. However, DISH has one of the weaker competitive positions within the multi-channel video programming distributor sector, in Fitch's opinion. DISH's market positioning as a low cost and value service provider is not sustainable as all market participants are aggressive with promotional offers in an increasingly mature video service industry.

DISH is in the process of re-positioning its brand away from a value proposition to a more technology and product focus. DISH's challenge is to re-energize subscriber growth without sacrificing subscriber economics (arguably already weak) or credit quality. Key to a successful transition will be the company's ability to bring to market new products and services valued by subscribers that are not easily replicated by competition. DISH lost approximately 344,000 subscribers during the last twelve month period ended Sept. 30, 2011.

DISH's credit profile has remained stable aside the inconsistent operating performance during the course of 2011. On a consolidated basis, total debt as of Sept. 30, 2011 was approximately $8.4 billion, somewhat elevated when compared with the $6.5 billion of debt outstanding as of year-end 2010. DISH's leverage was 2.37 times (x) on an LTM basis as of Sept. 30, 2011; however, considering the redemption of DDBS' senior notes in October, DISH's leverage is 2.1x. This leverage is consistent with year-end 2010 measures and strong for the rating category. Absent further investment supporting the company's wireless strategy or shareholder friendly initiatives, Fitch expects DISH's debt level will remain consistent and for leverage to approach 2x by year-end 2012.

The company's liquidity position is strong and supported by cash and marketable securities on hand and expected free cash flow generation. The company also benefits from a favorable maturity schedule as the next scheduled maturity is in 2013 totaling $500 million. As of Sept. 30, 2011, DISH had a total of approximately $3.4 billion of cash and marketable securities (current portion) - reflecting a modest increase compared with liquidity measures as of Sept. 30, 2010. Fitch notes that DISH used approximately $915 million of existing cash to redeem its 6.375% notes due 2011 and used an additional $892 million to fund the special dividend paid to DISH shareholders on Dec. 1, 2011.

Fitch does note, however, that the company does not maintain a revolver, which increases DISH's reliance on capital market access to refinance current maturities, elevating the refinancing risk within the company's credit profile. The risk is offset by the company's consistent access to capital markets and strong execution.

During the first nine months of 2011, DISH reported nearly $1.4 billion of free cash flow (defined as cash flow from operations less capital expenditures and dividends), nearly double the amount of free cash flow generated during the same period last year (2010). Free cash flow during 2011 benefited from lower capital expenditures (related subscriber acquisition and retention spending), and lower cash taxes. Fitch expects capital intensity will be relatively consistent over the near term and that capital expenditures will continue to focus on subscriber retention and capitalized subscriber premises equipment. Absent further investment in a wireless network or other strategic initiative, Fitch anticipates that DISH will continue generating relatively stable levels of free cash flow during the current ratings horizon while incorporating higher levels of cash taxes.

Rating concerns center on DISH's ability to adapt to the evolving competitive landscape, DISH's lack of revenue diversity and narrow product offering relative to its cable MSO and telephone company video competition, and an operating profile and competitive position that continues to lag behind its peer group. DISH's current operating profile is focused on its maturing video service offering and lacks growth opportunities relative to its competition.

The ratings also incorporate Fitch's belief that DISH's satellite based infrastructure can put the company at a competitive disadvantage, relative to the cable MSO and telephone company's respective technology and network positions, as video content is expected to be increasingly consumed over alternative platforms and devices such as wireless (4G) and higher-speed broadband networks.

Stabilization of the rating Outlook at the current rating level can occur as the company demonstrates that it can execute its wireless strategy in a credit neutral manner. Fitch believes negative rating action will likely coincide with the company's decision to execute a wireless strategy or other discretionary management decisions that weaken the company's ability to generate free cash flow, erode operating margins and increase leverage without a clear strategy to de-lever the company's balance sheet.

Fitch has affirmed the following ratings with a Negative Rating Outlook:

DISH Network Corporation
--IDR at 'BB-'.

DISH DBS Corporation
--IDR at 'BB-';
--Senior unsecured notes at 'BB-'.

Additional information is available at www.fitchratings.com. The ratings above were unsolicited and have been provided by Fitch as a service to investors.

The issuer did not participate in the ratings process, or provide additional information, beyond the issuer's available public disclosure.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2011);
--'Rating Global Telecoms Companies' (Sept. 16, 2010).

Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
Rating Global Telecoms Companies - Sector Credit Factors
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=550205

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