It is summer and love is in the air. Plenty of marriages and engagements alike. Stories about a possible arrangement between Dish and Amazon are resurfacing after they were first reported in May. While it makes a lot of sense for the two companies to partner, it makes a lot less sense for Amazon to buy Dish.
One of Amazon’s core competencies and differentiators is its distribution capabilities. As Amazon is increasingly insourcing the delivery component of its distribution capabilities, having access to a robust, leading IoT asset tracking system will become a key value creator for Amazon. A match-up with Dish would be a win-win for both companies as Amazon would be Dish’s “foundational customer.” Amazon, with its $21.5 billion cash hoard, could help Dish build a narrowband-IoT network that would fit its needs to track every item and package on every vehicle that transports Amazon packages throughout its distribution chain, from manufacturer to the end customer. On top of it, Amazon could insist on sector exclusivity that would preclude Amazon’s competitors from working with Dish.
Remember, Dish will have to build out its 700 E-Block and AWS-4 licenses or lose the licenses, regardless of a partnership with Amazon. Considering that a significant part of Dish’s value lies in its spectrum licenses, no one expects Dish to let its licenses revert back to the FCC. Since it is unrealistic that they will meet the 40% population coverage by the end of July 2017, they will have to meet 80% population coverage by March 2020. With or without Amazon as a foundational customer, a Dish NB-IoT network will likely prioritize coverage over capacity, which means Dish could construct, with minimal capital expenditure, at least enough of a network to possibly attract the interest of an established wireless operator willing to partner or joint venture.
The other interesting merger rumor news is that Deutsche Telekom apparently grew a partial backbone and has made noises about wanting to merge with Sprint, but only if Deutsche Telekom retains operational control and, one assumes, T-Mobile’s leadership team in charge. Right now Deutsche Telekom owns (after clearing up preferred stocks) 63% of T-Mobile USA and Softbank owns 82% of Sprint. With T-Mobile’s market cap being about $49 billion and Sprint’s market cap being $32 billion, in a straight equity deal without any premium, Deutsche Telekom would own 38% of the combined entity and Softbank would own 33%. Operational control could be achieved relatively easily by allocating the majority of board seats to Deutsche Telekom and its representatives. In reality, that means relatively little. The company has to be run for the benefit of minority shareholders. A very good, recent example, of how little “control” means when you have a large group of minority shareholders was Clearwire. Sprint owned more than half of Clearwire but had great difficulties in aligning Clearwire’s objectives with Sprint’s objectives, to the point where Sprint was forced to buy out the minority shareholders in order to run the company.
To make things more interesting and not to look just desperate for a deal—which is never a good negotiating position—Sprint is reported to have started “exclusive” negotiations with Comcast and Charter about a cooperation. Considering the haphazard relationship of the cable companies with Sprint in particular, I don’t expect much to come out of it besides making Sprint look more attractive in the eyes of Deutsche Telekom. It is also difficult to assess the reception a Sprint/T-Mobile merger would have in Washington, D.C. With an “America First” administration, it is unclear how the administration would view the merger, which would make it easier for a Japanese/German company to compete with two American companies on U.S. soil due to merger benefits that would at least partially rely on cutting American jobs in the already-struggling retail sector.
And then there is the Verizon Disney rumor. I can only attribute this to the intense rivalry between AT&T and Verizon. If one does something, the other is normally responding to it. If AT&T buys Time Warner, the reflex in New Jersey is that Verizon has to, at the very least, investigate a similar move if not follow it and vice versa.
With all the rumors out of the way, there is a real merger to talk about. Crown Castle is buying Lightower for $7.1 billion. The transaction doubles Crown Castle’s fiber footprint of roughly 60,000 miles as it enables one-stop shopping when building a network by getting a tower location and the necessary backhaul out of one hand. Due to Lightower’s network in the largest northeastern metro markets, it will make Crown Castle the company to beat for small cell deployments in Boston, New York, and Philadelphia.
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.