Rumor mill: Sprint, Dish cozying up for MVNO deal

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It may have been coincidence, but Dish Network Chairman Charlie Ergen last week was somewhere in Asia--perhaps Japan, home of Softbank--on undisclosed business just as a rumor broke indicating that Sprint Nextel (NYSE:S) had reached out to Dish regarding a spectrum-sharing partnership to enable mobile broadband development.

Bloomberg on Dec. 7 reported that Sprint proposed an MVNO and spectrum-sharing arrangement via which it would use Dish's 2 GHz AWS-4 spectrum, likely to expand its fledgling LTE network. The companies could share revenue from customers who sign up for a Dish-branded wireless service, or Dish could pay Sprint a fee to resell wireless phone service on Sprint's network. Bloomberg cited sources close to the matter who were not authorized to speak publicly.

The upside for Dish is that it would be able to market a wireless phone service to its 14 million customers without needing to build the LTE-Advanced network that it has been planning, while Sprint would gain access to 40 MHz of Dish-owned spectrum. Dish has been looking to enter the wireless broadband business as its satellite-based pay-TV network is in decline, with many younger consumers opting to view video over the Internet rather than paying for costly cable and satellite TV programming packages.

Any such reseller arrangement between Dish and Sprint would require the approval of Japan's Softbank, which is paying $20.1 billion for a 70 percent stake in Sprint.

After the Bloomberg article broke, the Denver Business Journal subsequently reported that Ergen was in Asia on Dec. 7, though Dish Network CEO Joe Clayton declined to specify which country Ergen was visiting or why. "Asia's a big place," said Clayton. "I'm may be from Kentucky, but I'm not dumb."

Clayton earlier told Bloomberg that discussions with partners are on hold while Dish waits this Wednesday's FCC vote on rules for the terrestrial use of Dish's 40 MHz of spectrum, which is known as AWS-4, as well as rules for the auction of the H Block.

Sprint and Dish have been at each other's throats regarding the FCC proceeding. In a recent filing, Sprint blasted Dish's latest proposal to set aside 5 MHz of the lower portion of its spectrum as a guard band to protect the 1900 MHz PCS H Block, saying that move would lead to an increased risk of interference in the H Block, which Sprint has indicated it wants to bid on next year to use for LTE. The upper portion of H Block runs from 1995-2000 MHz and sits directly adjacent to the lower portion of Dish's spectrum.

The FCC is widely expected to unanimously approve a proposal circulated by FCC Chairman Julius Genachowski, which would enable Dish to use its AWS-4 spectrum for terrestrial, rather than satellite, services and would set the stage for 2013 auction of the H Block, proceeds from which are slated for deficit reduction and funding of FirstNet, the unit of the National Telecommunications and Industry Administration that is charged with overseeing the planned nationwide public-safety LTE network. However, Genachowski's proposal would require Dish to protect the implement power changes to protect the the H Block from interference.

Dish and Sprint, despite their public dispute over proposed AWS-4 and H Block spectrum rules, have something of a history. They are based in neighboring states, Sprint in Kansas and Dish in Colorado, and several former Sprint and Nextel executives have joined Dish in recent years. Further, Ergen is rumored to hold in excess of $900 million of WiMAX provider Clearwire's (NASDAQ:CLWR) debt. Sprint is Clearwire's majority investor and the two have a spectrum-sharing agreement.

"Ergen is known for fighting vigorously right up to the time he does a deal with an opponent," wrote Tim Farrar, head of Telecom, Media and Finance Associates, in a blog entry. He suggested that even if a deal is not announced between Sprint and Dish, an impending proxy filing from Sprint and Softbank "will have to reveal if discussions have been going on with Dish behind the scenes over any potential deals."

The proxy statement Farrar referred to is the one due for filing by Sprint and Softbank with the U.S. Securities and Exchanges Commission regarding their planned partnership. The companies delayed the proxy statement's filing by three weeks to Dec. 21, reportedly due to several financial and accounting issues.

Meanwhile, Dish appears to be pulling out all the stops to get dip its toes into the wireless communications business. Another Bloomberg report early last week, also citing unnamed sources, said Dish has begun selling Verizon Wireless (NYSE:VZ), Sprint Nextel and T-Mobile USA phones through Blockbuster's website, and that the company plans to expand those sales to its 850 Blockbuster retail stores.

For more:
- see this Denver Business Journal article
- see this Bloomberg article
- see this TMF Associates blog entry

Related articles:
Sprint slams Dish's latest spectrum proposal
Report: Dish to sell Verizon, Sprint, T-Mobile phones through Blockbuster
Dish relents, says it will accept 5 MHz guard band
Genachowski: Sprint, Dish will get AWS-4, H Block rules this month
Sprint's investment designed to scare off Clearwire suitors