April 15, 2013 7:49 pm

Sprint offers Dish chance for revival

Charlie Ergen is the wild card in the US mobile industry. As the sector has been shaken by a series of megadeals in recent months, executives, advisers and analysts knew the Colorado billionaire would be itching to play a role.

On Monday his intentions became clearer. The chairman of satellite TV operator Dish Network launched an unsolicited $25.5bn bid for Sprint Nextel, the third-largest US mobile operator with 46m subscribers.

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Taking over Sprint would allow Mr Ergen to use a large cache of spectrum he has accumulated, including satellite spectrum which regulators have agreed Dish can repurpose for terrestrial mobile communications.

It would also scuttle the $20.1bn deal agreed in October in which SoftBank , Masayoshi Son’s Japanese wireless operator, would take control of Sprint. Success for that deal would leave Dish dependent on satellite video and running out of options to use the spectrum it has amassed.

SoftBank’s deal is moving towards approval from US regulators keen to foster competition to Verizon Wireless and AT&T Mobility, which together control more than 70 per cent of the US smartphone market.

“We believe that Dish is more strategically desperate for Sprint than is SoftBank; however, SoftBank certainly has deeper pockets,” analysts at Stifel wrote on Monday. Concern at the creation of a duopoly was central to why US regulators opposed AT&T’s $39bn bid for Deutsche Telekom’s T-Mobile USA in 2011. That deal’s failure added impetus to the reshaping of the US mobile landscape driven by change in technology, shortage of spectrum and need for scale. This gave Mr Ergen his opportunity.

When the AT&T deal collapsed, a revitalised T-Mobile USA – flush with funds and spectrum that AT&T handed over in a break clause – agreed to acquire rival MetroPCS . A shareholder vote on that deal is due later this month.

As part of its agreement to acquire a 70 per cent stake in Sprint, SoftBank has bolstered Sprint’s balance sheet through a convertible bond issue. This gave Sprint the flexibility it needed to bid for the 49 per cent stake it did not already own in Clearwire, the wireless broadband provider.

Dish’s satellite video business is in decline and lacks the growing broadband revenue its cable rivals enjoy. Buying Sprint would let it match their offerings. “Satellite’s position in the pay TV industry is challenged,” noted Benjamin Swinburne of Morgan Stanley. Mr Ergen believes a combination of Sprint and Dish – which offers TV to handheld devices by its Slingbox technology – would have a vital advantage.

“Everybody I know in the US wants to have in the house a voice product, a broadband product and a video product,” Mr Ergen told the Financial Times, “and they want the exact same product outside the house . . . in an integrated manner and they want that in one bill they understand and they want to tie all their devices together.”

Mr Ergen admitted he talked “with everybody” in the industry before settling on a bid for Sprint. Those talks picked up momentum in January after the FCC approved Dish repurposing its spectrum.

Dish’s options included selling its spectrum – valued by Mr Ergen at $8bn to $10bn, but much lower by analysts; building its own LTE network – a hugely costly proposition; or finding a partner to help build the network.

Dish talked to Sprint and T-Mobile about partnerships or spectrum sharing and bid for spectrum owned by Clearwire – an offer that the target’s board rejected.

Mr Ergen argues his bid for Sprint is not only financially superior to SoftBank’s terms, but has other advantages as well. Asked about his estimate of $37bn synergies and growth opportunities from the deal, he said short-term growth would come from a triple-play bundle “with a price incentive” but long term it would be positioned for growth as video, broadband and mobile converge.

Some analysts agreed: “The benefits SoftBank would bring to Sprint are scale in the wireless industry,” said Charles Golvin of Forrester Research: “On the other hand, Dish would make Sprint a much more firm competitor to Verizon and AT&T not just in wireless, but in broadband and TV as well. They would be a true national competitor.”

Shareholders may favour Dish, Mr Golvin added.

The prospect of stronger competition could be important for regulators. “We believe this is not going to raise any regulatory hurdles,” Mr Ergen said. “For the justice department, I don’t think anybody would say this is concentration. And it’s very clear the FCC is going to great lengths to strengthen competition to Verizon and AT&T to help Sprint and T-Mobile.”

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