If he can't buy Sprint, what is Ergen's plan B? (And C and D?)

Mike Dano

SoftBank's increased offer for Sprint Nextel (NYSE:S) indicates SoftBank CEO Masayoshi Son is prepared to go the distance. It is entirely possible that Dish Network's (NASDAQ: DISH) Charlie Ergen will increase his own bid for Sprint, but if Ergen is ultimately unable to defeat Son, what will Ergen do next?

It's now crystal clear that Ergen wants to play in wireless. Dish first made moves into wireless when EchoStar purchased 700 MHz E Block spectrum in 2008. Three years later, Dish spent $2.775 billion on 40 MHz of S-band satellite spectrum in the 2 GHz band. Now, Dish is reportedly working to acquire LightSquared's spectrum from bankruptcy as well as spectrum from Clearwire. Ergen has said he ultimately wants to be able to provide customers with Internet and TV services both in the home and on the go, but the real driver is probably Dish's slowing satellite TV and Internet business.

If Son takes Sprint off the table, Ergen still has a few options to play with:

1. Ergen could make a bid for T-Mobile US (NYSE:TMUS). Indeed, Bloomberg in April reported that Ergen informally approached Deutsche Telekom about purchasing T-Mobile sometime before April 10. Since then, DT closed the merger between T-Mobile and MetroPCS while Dish chose to pursue Sprint instead.

In its agreement to merge T-Mobile with MetroPCS, DT pledged not to sell shares of the new carrier on the stock market for 18 months. However, according to Bloomberg, DT CFO Timotheus Höttges said that there is an "exception clause" in the agreement that would allow DT to sell its 74 percent stake in T-Mobile US "in one go."

"DT I think would sell in a heartbeat," said Recon Analytics analyst (and FierceWireless contributor) Roger Entner.

Based on his seemingly bottomless appetite for spectrum, Ergen certainly appears set on buying his way into the wireless industry rather than forming a network-sharing partnership or MVNO agreement. A Dish purchase of T-Mobile would give Ergen what he wants: A nationwide network that could compete with AT&T Mobility (NYSE:T) and Verizon Wireless (NYSE:VZ). The combination of T-Mobile's spectrum with Dish's current holdings would be technically challenging, but the same is true of a Sprint-Dish merger.

"Investors will likely bet that Dish will shift its focus to T-Mobile once they have failed with Sprint," wrote New Street Research analyst Jonathan Chaplin in a note today. "We believe it is entirely possible that Dish could make a bid for T-Mobile; however, like the bid for Sprint, we doubt that it will result in a deal."

2. Ergen could continue to chase Clearwire. Ergen obviously wants Clearwire--after all, he increased his bid for Clearwire to $4.40 per share in May. However, it's unclear if Ergen's pursuit of Clearwire is solely a bargaining chip in his quest for Sprint or if he truly sees value in Clearwire's spectrum. Clearwire has long boasted of the value of its 2.5 GHz holdings, but the propagation characteristics of Clearwire's radio waves make it difficult to cover wide areas with the licenses.

Dish could combine its existing spectrum holdings with those from Clearwire, but the result likely wouldn't put Dish in a position to effectively compete with Verizon and AT&T--a position Ergen appears to covet.

But, if Ergen were to secure both Clearwire and LightSquared (and if he could address interference concerns with LightSquared's spectrum) the resulting Frankenstein network could become a formidable offering.

However, a Dish purchase of Clearwire wouldn't close quickly, warned Entner, pointing to Sprint's desire for Clearwire and the existing relationship between Sprint and Clearwire, in which Sprint is the majority owner. If Dish continues to pursue Clearwire, "it will end up in the courts and will be quite protracted," Entner said.

3. Ergen could pursue a network-sharing agreement with a Tier 1 wireless carrier. All of the nation's mobile operators want additional spectrum, and the licenses that Dish holds could give AT&T, Verizon, Sprint or T-Mobile a leg up on the competition. If Ergen is unable to purchase a significant spectrum position in the U.S. market, he might consider teaming with an existing player through some kind of network-sharing agreement.

There is precedent for this type of approach. In Europe, network-sharing agreements continue to proliferate among wireless carriers pressured by competition. And in Canada, Rogers Communications and Quebecor's Videotron recently agreed to build and operate a shared wireless network in Québec.

Further, Sprint pioneered this exact setup with a network-hosting agreement with LightSquared before LightSquared fell into bankruptcy. If Ergen purchases LightSquared from bankruptcy, he could restart that network-hosting plan.

But, noted Entner, Ergen "doesn't play well with others."

These aren't Ergen's only options, of course. He could sell his spectrum outright, launch a Dish-branded MVNO or acquire regional wireless carriers like Leap Wireless (NASDAQ:LEAP) and C Spire Wireless. And there's always the possibility of a surprise, like a teaming between Dish and Google (NASDAQ:GOOG)--already, Google has been reportedly testing ways to fund, develop and launch wireless networks in emerging markets. As New Street Research analyst Chaplin wrote: "We acknowledge that trying to anticipate what Dish will do next is difficult--Ergen is a master tactician with an unbounded ability to surprise."

Whatever the outcome, Ergen definitely has the wherewithal to test all his options before committing to any (or multiple) moves.

--Mike | +Mike Dano | @mikeddano

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