Wednesday, April 17, 2013

Dish eager to extract value from spectrum holdings concocts elaborate plan to buy Sprint

Dish Network Corp. recently launched an unsolicited bid for Sprint in the midst of the Sprint - Softbank merger. At the same time, Verizon declared that they would be interested in purchasing spectrum from Clearwire that would become part of the Sprint - Softbank merger.

Both of these offers are unlikely to prevail and it is very unclear wether they would deliver any benefits beyond Dish and Verizon. 

Part of the reason why Dish is making this offer is to extract value from its existing spectrum position. Dish owns a not insignificant amount of spectrum in the US wireless market and most of it is not used at the moment. By making a play for Sprint, Dish is trying to extract value from this position that is significantly greater than if they just sold the spectrum to a carrier. Also, as LA Times suggest, the core business of Dish Netorks, TV distribution, is being disrupted by Netflix and Hulu and might not be around for much longer.

Unfortunately for Dish, Sprint is very unlikely to see much value in the offer. First of all, Sprint is very top heavy in its existing spectrum holdings, meaning that (if you include Clearwire) they immense amounts of high frequency spectrum and likely could do very well without the Dish spectrum block. If Dish would have brought precious low-frequency spectrum to the table it might have warranted another look from Sprint. Maybe Dish should give T-Mobile a call instead, they might have use for this spectrum.

In addition to this, the current merger partner, Softbank, has proven adept at navigating the very competitive Japanese market and can bring much needed expertise to Sprint on how to successfully run a wireless carrier. It is not clear that Dish can offer the same. The track-record of cable and satellite companies in the carrier market is doubtful at best.

Without going too far down the road of conspiracy theory by connecting the Dish bid and Verizon play for Clearwire spectrum there are clear benefits to Verizon (and AT&T) with both.

First of all, the Verizon bid for Clearwire spectrum makes sense. Verizon needs this kind of spectrum. Clearwire/Sprint has loads of it. Simple enough. However, by making a play for the Clearwire spectrum position before the Sprint/Softbank/Clearwire merger has closed, Verizon is throwing the somewhat lukewarm shareholders of Clearwire a bone to delay or derail the merger.

A failed Sprint/Softbank/Clearwire merger has many large upsides to Verizon (and AT&T). The most obvious one is the possibility of forced spectrum sales, especially on the Clearwire side. Also, the merger is the best shot in years for Sprint to become a competitive player in the US market. The merger partner Softbank provides expertise, a clear strategic direction and capital to execute the plan. If it fails, it gives the Verizon and AT&T duopoly another couple of years of respite from aggressive national competition.

Most likely both bids (Dish & Verizon) will fail and the merger will go through. Unless Dish can strike up a partnership with T-Mobile they will probably have to settle for a sale of their spectrum position to AT&T, Verizon or T-Mobile.


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