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Roger Entner |
Dish Network just threw its hat into another merger ring with its $25.5 billion bid to acquire Sprint. This follows Dish's bid to purchase Clearwire, which Sprint was already in the process of purchasing. Dish's announcement followed Friday's news that Verizon Wireless is offering to purchase some spectrum from Clearwire, all while Crest Financial is adamantly opposing Sprint's proposed purchase of Clearwire. It looks like Sprint can't catch a break here. Let's look at how the different constituents--Sprint shareholders, Sprint as the company, Sprint's customers, Sprint's competitors, and the regulator--are affected:
Sprint shareholders are going to get more money. The SoftBank offer values Sprint at slightly over $20 billion, while Dish's offer values Sprint at over $25 billion. It is quite possible that SoftBank will sweeten its offer to top that of Dish Network.
Sprint as a company is going to experience a longer phase of uncertainty. The company's direction, while not in limbo, will remain on the same course as it is now so as to preserve the opportunity to change direction for the new owners. Unfortunately for Sprint the current course includes postpaid customer losses and a course adjustment is very much needed. This is especially the case since T-Mobile has just announced a brand new positioning and Sprint as the other nationwide value leader brand needs to respond to it. The increased ability to bundle products with Dish could help make Sprint an integrated media company, an idea former Sprint CEO Gary Forsee always championed--unfortunately before its time. Maybe the time is right for Charlie Ergen? What speaks for SoftBank is its expertise in running wireless networks and its deep pockets. Bringing Sprint's network up to par after years of underinvestment will require significant financial resources which SoftBank has in abundance.
Sprint customers might be the big winners when it comes to the ways Dish could bundle its offers with that of Sprint. How much can be bundled with linear television is yet to be seen after the MediaFlo flop. On-demand video on the other side is the major source of data consumption on wireless networks, but mostly short-form content rather than the movies that Dish has available through Blockbuster. With the huge infusion of additional spectral capacity, the post-merger company could support very high quality, very fast mobile video and other mobile data applications. Dish's traditional cost-cutting measures and low prices would make Sprint a solid value player. Dish is also known for its good customer service so customers would continue to benefit there. At the same time, they would forgo new impulses from Japan where customer service and network performance is legendary.
Sprint's competitors, especially T-Mobile, will see this as a welcome development. As T-Mobile is going through a merger itself and is repositioning it as the "uncarrier" it benefits the most when its direct competitor for the value segment among the nationwide carriers has to battle warring suitors. Verizon and AT&T are probably standing by watching the spectacle in amazement. If Dish were to acquire Sprint, the combined company would hold more than double the amount of spectrum held by AT&T and Verizon, catapulting Sprint ahead of its competitors in terms of capacity to support intensive data use by subscribers.
Regulators must be feeling a tad embarrassed to be overtaken by events so quickly, yet again. Just last week the Department of Justice argued to the FCC that the agency limit AT&T and Verizon access to more spectrum in the upcoming incentive auctions and instead get the spectrum into the hands of the "smaller" national providers on the theory that the "smaller" providers needed the infusion of spectrum to compete. Not even a week later, the proposed Dish/Sprint/Clearwire merger would create an operator that has 2.5-times as much spectrum as Verizon or AT&T. No fictional play could have made the Department of Justice's position more untenable, more quickly. As the regulators desperately try to engineer the birth of another nationwide carrier, they forget how poorly such machinations have worked in the recent past. Terms like NextWave and LightSquared, seem to have evaporated from recent memory inside the Beltway. It will be interesting to see how this proposed transaction will be evaluated by the regulators, assuming the Sprint shareholders allow it to proceed. If nothing else, it's another reminder that the wireless sector has a way of working issues out a lot faster than Washington.
Roger Entner is the Founder and Analyst at Recon Analytics. He received an Honorary Doctor of Science from Heriot-Watt University. Recon Analytics specializes in fact-based research and the analysis of disparate data sources to provide unprecedented insights into the world of telecommunications. Follow Roger on Twitter @rogerentner.