T-Mobile, which has tried unsuccessfully several times over the years to get acquired, is now in talks with Dish, according to press reports. The purchase price and possible cash-stock mix that could pay for the deal remain to be thrashed out.
The two companies reportedly are planning a merger with Dish CEO Charlie Ergen to chair the new company and T-Mobile head John Legere (pictured above) to be its CEO, but nothing has really been settled.
The deal’s likely to go ahead, said Sam Rosen, a practice director at ABI Research.
“Dish has spectrum rights which it needs to use, or it’ll face pressure to sell them off,” he told the E-Commerce Times.
Building a fifth carrier “isn’t reasonable, but combining with a mobile carrier brings spectrum benefits, in addition to some bundling benefits — especially for rural regions where Dish’s satellite Internet access plays,” Rosen explained.
Dish is sitting on an estimated US$40-$44 billion dollars’ worth of licenses in the AWS-4, H Block, 700 MHz and AWS-3 bands of spectrum.
Like Attracts Like
Both companies have similar cultures, being disruptors, remarked Sue Rudd, a research director at Strategy Analytics.
“Dish supports Sling and cord cutters, while T-Mobile US is the ‘un-carrier’ — eliminating the two-year contract, enabling WiFi and, with Sprint, Google Fi” — and both have aggressive pricing, she noted.
The merged company likely will be operated as Dish/T-Mobile US, as if it were a joint venture, Rudd suggested.
“T-Mobile US wants to use Dish’s spectrum to improve its network, and the FCC would require paperwork if it’s not a merger with internally coordinated secondary terrestrial reuse,” she pointed out.
Whys and Wherefores
The possible merger is a partial response to AT&T’s deal with DirecTV, which “creates a stronger fourth player in mobile while accelerating the evolution to converged transport network-independent content networking,” Rudd contended.
If the merger goes through, the resulting company would be in a select group of communications behemoths soon to be born.
AT&T’s $49 billion purchase of DirecTV will create the largest pay-TV company in the United States; and Charter Communications’ $67 billion purchase of Time Warner Cable and Bright House Networks will create the second-largest cable operator in the United States.
Dish needs the deal. Besides needing to monetize its huge bank of spectrum licenses, it’s losing subscribers due to a weak economy and strong competition. Its loss of the Fox entertainment and news channel for a three-week period in January, which ended with a new distribution agreement, also may have cost it subscribers.
The turmoil led Ergen, chairman of Dish, to replace then-CEO Joe Clayton in late March, taking on that role himself to diversify the company into new lines of business.
Ergen has been eyeing the wireless business for some time; he previously wooed Sprint and Clearwire unsuccessfully, and last year told T-Mobile owner Deutsche Telekom that he was interested in buying the carrier.
Dish “is probably also interested in moving from traditional TV content to value-added content and low-cost bundles,” Rudd speculated.
T-Mobile has been on the block for some time. AT&T’s attempt to purchase it failed in 2011 due to regulatory issues, and a possible deal with Sprint fell through last year.
“Mobile and broadband have been the growth segments for operators,” ABI’s Rosen pointed out. “Larger scale is required for marketing, operational efficiencies, and content negotiations.
In the short term, the deal will increase the competitiveness of T-Mobile’s network if it goes through, “adding fuel to a fast-burning fire,” ABI’s Rosen said.
We might see improved bundled offers in rural areas. Further, the new company could find “the biggest holes from a pricing perspective in AT&T and Verizon,” and apply increased pressure on the mobile market overall, he speculated.
Financing will be the biggest obstacle to the merger, Rosen said. “The question will be about what the expected synergies are.”
U.S. government regulators are not likely to prove an obstacle, though, said Strategy Analytics’ Rudd, “if the FCC lets the AT&T-DirecTV deal go through, as seems likely.”