The latest ad from Tony Sagami for his Disruptors & Dominators newsletter has been driving a lot of questions to the Stock Gumshoe inbox, and he’s actually been circulating a similar ad for about two weeks now for his Blue-Chip Option Alert service — recommending, it appears, different trades (one option, one equity) on the same basic theme.
We didn’t look into the Blue-Chip Option Alert teaser in detail when it first ran, though there was a discussion of it here on the site, but now the push is seemingly even more aggressive for this Disruptors & Dominators letter, so we’ve moved this one to the top of the pile for the Thinkolator’s consideration.
So what is Tony Sagami pitching? It’s a telecom stock, here’s how he teases it:
“The destruction of the ‘mobile internet’ is about to usher in a new age of tech profits that DWARFS the Tech Boom of the 90’s …
“Get ready for gains of 268% … 622% … 949% or MORE in just a few weeks … as Silicon Valley unleashes the ‘MOBILE SUPERNET.'”
So it’s certainly on a hot theme — nothing is disrupting the world of technology more than the huge sea change to mobile technology, putting your TV and your office in your pocket and putting significant strains on network data capacity and on advertising-driven business models. But what is this “mobile supernet” he speaks of?
Here’s some more of the tease:
“most mobile data networks are running on technology that’s the equivalent of dial-up service back in the 90’s … extremely slow and extremely unreliable….
“… it’s not your fancy iPhone that’s the problem … it’s the outdated cellular networks.
“With the way the technology works … it’s almost impossible to get those “5 bars” of service … and if you do manage to get a good connection spot, you better stand perfectly still or risk losing your good connection.
“Plus, crowded areas like New York, Chicago and San Francisco are already experiencing severe congestion on their networks which slow your internet to a snail’s pace.
“And while the new 4G connections are closing the speed gap …
“It still doesn’t solve the fundamental problem of reliable coverage areas … and it still won’t help you when a tower is overloaded with thousands of people trying to use the mobile internet at the same time.”
I don’t run into these problems as much anymore, but they certainly come to light sporadically — and I do remember the problems AT&T had in New York City a few years ago with the shocking (for them) spike in data usage as the iPhane became quickly popular, I had a couple trips to Manhattan during which my phone was essentially unusable. I imagine those problems continue, in pockets at least, and that’s a large part of the reason that providers are now trying very hard not to offer “unlimited data” … if you’re going to crush their network, they’d like to be able to charge you more so they can buy more towers or spectrum.
But what is it that Sagami is pitching as a solution? Well, this is a two-parter — he first teases the technology, but the technology is not directly investable for those of us who aren’t in the venture capital world. And next he teases the one way to invest in the early days of this new “Mobile Supernet”. We’ll take it in two parts as well.
Here’s how he pitches the tech:
“According to a recent article on Business Insider … it has the power to ‘reinvent wireless.’
“And John Scully, former CEO of Apple says, ‘[the Mobile Supernet] is an authentic ‘moon shot’ disruptive invention, [just like] in 1982 when Steve Jobs showed me a prototype of the Mac … ‘
“It’s over 1,000-times faster than the current 4G technology …
“Plus it solves one of the biggest problems plaguing the mobile internet industry today … spotty service.”
I think we need some better phrase than “moon shot”, frankly — it conjures up a clear image of a risky bet-it-all enterprise that’s trying to do something unprecedented, which is great… but even if you get past the probably unhelpful “engineering heroism can fix all” uses of the “moon shot” phrase in political life, the fact remains that it uses as an example of big and risky investment something that is one of the incredible modern scientific success stories, which colors our ideas of risky change (assuming, of course, that you’re not one of the folks who believes the moon landing was faked). Wouldn’t you think about the phrase “moon shot” differently if Apollo had been an expensive failure? We’ll accept any and all submissions for a new big-bet metaphor.
But more to the point, what’s the change that makes mobile service better?
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“… the ‘Mobile Supernet’ solves this problem once and for all.
“They’ve created a brand-new antenna that’s the size of a notebook … and they can be placed on literally every city block without causing any interference.
“In fact, this breakthrough technology combines all the signals, amplifies them, and turns your smartphone into your own “personal cell tower.”
“The technology is revolutionary and complicated but what that means is, you get perfect ‘5 bar’ coverage everywhere you go.
“As wired puts it … ‘Since the invention of wireless, people have moved around the coverage area. Now, the coverage area follows you.'”
So that, as many folks in previous discussions have noted, is a reference to a company called Artemis (there’s the moon again) and an inventor named Steve Perlman who’s trying to create the next generation of wireless, which he calls “pCell.”
And no, even if you think this will be a huge success you probably can’t buy shares of Artemis, it’s just in the first stage of commercializing the technology and is still a part of Perlman’s tech incubator company (called Rearden) … but the technology does certainly seem plenty cool. You can see the Wired article quoted in the ad here, and there’s another worthwhile article here that includes the “moon shot” quote and the comparison to Steve Jobs and the Mac. The company they’ve worked with to actually build the antennas/base stations is PureWave, which is also venture-backed and private.
So what’s our investment idea here, Mr. Sagami?
“This Stock is Set to Double by December 15th, 2014 …
“Fortunately for us … this small tech company I was telling you about just made a major breakthrough which could change the face of mobile … and it has all the major cell phone carriers shaking in their boots.
“Unfortunately, this small tech company is not traded on any public exchanges right now …
“But I’ve found an even better way to play this emerging technology trend.
“You see, they’ve recently signed a licensing deal with major telecom company to roll out a beta version of their technology in San Francisco by December 15, 2014.”
So who is it? This is, according to the Mighty, Mighty Thinkolator, Dish Network (DISH)
And we’ll give some credit where it’s due here — Rosalind, one of our Irregulars, did call attention to Dish in the initial discussion of the ad a couple weeks ago… though the ad was a bit different at the time and she thought it was teasing a hardware company. She’s right, though, the tease from Sagami is for Dish Network. Which is, to say the least, an interesting company.
DISH is controlled by Charlie Ergen, who has 80%+ voting control of the company as Chairman and who has been very willing to make big gambles in the past (he was a professional card player — the story is that he started Echostar, selling satellite dishes door-to-door, after getting kicked out of a casino for counting cards at Blackjack). He’s also been a subject of almost endless speculation as people try to figure out what he’s going to do to turn DISH into a more relevant player in the evolving telecom space and whether it means DISH is an acquirer or a acquiree, no one seems to think that DISH will continue to stand alone for long. Speculation heated up last year, when Ergen tried and failed to acquire Sprint (it was bought by Softbank instead, we talked a bit about them last week), but DISH is in the news again now because of DirecTV. Dish Network has been a second-place player behind DirecTV in most areas, and now with DirecTV in the process of being acquired (regulators permitting) by AT&T the natural question is… whither DISH? If they continue along mostly being just a satellite TV provider and there’s no value realized from the spectrum they own, then the stock is way too high for a stagnant part of the industry.
Well, part of Ergen’s plan for DISH obviously includes wireless broadband — he has spent billions buying up national wireless spectrum that he doesn’t need for satellite TV, and with Sprint now in other hands there’s been speculation that he’d move to acquire fellow also-ran T-mobile (which Softbank also wants to buy, if regulators would endorse going from a duopoly with two hangers-on to a triopoly). There’s even been some speculation that the delay of DISH’s annual meeting means something big is in the offing, so perhaps there will be something exciting coming soon. Or perhaps not… Ergen can do pretty much whatever he wants to the company, given his voting control and 50%+ shareholding, and he’s not talking much in the way of details other than reiterating how valuable the spectrum might be for something like fixed wireless broadband/TV and the notion that they might build that out themselves (you can see his latest comments in the last DISH quarterly conference call transcript here), so we’re left to guess.
You don’t need me to guess, since I have no idea, but there was a good article in the FT last week about the possible permutations… and it reiterated, importantly, that building a new national broadband company would probably require both a partner for DISH and a lot of capital to build out a new national service. Buying T-mobile would give them a partner, but no cash, and they probably don’t have enough money to outbid Softbank if regulatory approval is possible for a Sprint/T-mobile merger… so it seems likely that the sensible outcomes for DISH are either selling off their valuable spectrum or attracting a deep-pocketed partner, and analysts seem worried that the whirlwind wave of telecom marriages has left DISH the last one standing. Who knows, maybe the big tech guys will get interested in national spectrum, too (a la Google’s efforts to spur more high-speed internet through Google Fiber), but the “natural” partners are more limited.
Will Artemis change the landscape for DISH? Well, there’s no indication I’ve seen that DISH has any equity in Artemis or any control over them, but they are the first major partner for Artemis. And they are rolling out a test to get coverage across the San Francisco Bay Area — I have no idea what exactly the test is aimed at or who will be testing what kind of data transmission, perhaps they’re just after proving the concept at something like real-world scale outside of a lab… but it is Dish spectrum and Artemis’ pCell technology being tested. The pCell technology is supposed to work with existing 4G devices, so it wouldn’t necessarily require a new wave of consumer devices or boxes — but it would require thousands of additional antennas even just to cover the Bay Area. Artemis was supposedly going to test their technology on the Clearwire network in the same geographic area last year, and by some reports they did test it, but I haven’t seen anything about what the results were (Clearwire, coincidentally enough, was the first of the “national wireless braodband” attempts and, after burning through incredible amounts of cash and enticing investors for years, is now owned by Sprint/Softbank).
Does that mean DISH will double by December 15? That strikes me as a bit ambitious, but DISH is absolutely a big story in search of a catalyst, even if that search for a catalyst or a good “hook” for the story has been going on for several years. It’s a big company with a market cap of almost $30 billion, and it’s profitable, but any valuation assessment of DISH has to be built on some kind of valuation for their unused spectrum and the optionality of what they might do with that spectrum — they certainly aren’t worth 30X earnings as a third place (in most markets) provider of video content.
Presuming Sagami was also touting DISH options for his earlier options teaser pitch using this same story, the December 2014 at-the-money call option buyers are betting that DISH will rise by at least 10% — but there aren’t many of those contracts outstanding, I’d assume that if Sagami suggested a specific option trade he probably pointed to the September $65 calls or the January $75s, but that’s just a guess because those options have the highest open interest (it’s unusual to see a newsletter of any real size tout an options trade and not see open interest of at least 5-10,000 in that contract — FYI, “open interest” is essentially the count of existing contracts at that strike price, netting out the contracts that were opened or closed on that day, so a small number means very few people are in that options trade… “volume” is the number of contracts traded during a particular day).
I’ll leave it to you to guess which direction the stock will move, and when, but can just confirm that yes, DISH is the Artemis partner in San Francisco; and yes, if Artemis is going to roll out their pCell nationally then DISH does have the available spectrum to commit to something new (if not the available capital). I suspect we’re getting a bit ahead of ourselves in assuming that the first test of this pCell in California later this year is going to shake the earth… but you never know, maybe it really is a “moon shot.”