T-Mobile/Dish deal could create a new bundle, but consumer interest might be tepid

A combination of Dish Network (NASDAQ: DISH) and T-Mobile US (NYSE:TMUS), which reports last week said is being discussed, could lead to a new bundle of wireless, satellite and over-the-top video services. But analysts and industry experts wonder if bundling the companies' services would make sense and if American consumers would buy them together.

As The Wall Street Journal notes, American households spent more than $191 a month on average for television, Internet and phone services in 2013, according to Labor Department data, which was up 24 percent from 2007. AT&T's (NYSE: T) $48.5 billion bid for DirecTV (NASDAQ: DTV), which is expected to close soon, is an indication that consumers will soon be getting more of those services from consolidating companies.

Carriers like bundles because they tend to reduce churn. The trend toward "quad-play" offerings has picked up over the last few years in Europe but in general has not caught on in the U.S., as most consumers have preferred to spread around their spending between wireless carriers, ISPs and TV providers. Additionally, many consumers are ditching landlines; by the second half of 2013, 41 percent of U.S. households were relying entirely on mobile phones for this service, a figure that has likely grown since then.

According to Strategy Analytics data cited by the Journal, nearly half of French households buy three services from a single carrier, while only about a third of consumers do in the U.S. In Spain, nearly 60 percent of households buy four services from a single operator but only 6 percent of U.S. households do so.

Usually discounting services is the only way to get consumers to buy a bigger bundle. "Bundles also provide sticker shock when you see one price on your bill," Sam Howe, CEO of Allconnect, a company that sells landline phone, Internet and cable TV services on behalf of most major providers, told the Journal.

The WSJ noted that Dish's average revenue per user for pay-TV was around $86 per month in the first quarter, up slightly from a year earlier, while T-Mobile's branded postpaid average billings per account grew to a record $145.03 in the first quarter, up 11.8 percent from $129.74 in the year-ago period. Thus, a combined bill for a family from Dish and T-Mobile could top $200 per month.

However, while telecommunications companies see the benefits of convergence and sending as much of their voice and video traffic as possible over common IP network architectures, consumer tastes are moving to OTT video and wireless and away from traditional pay-TV and landlines. "The classic video, voice and data triple play is expensive, and some people are having indigestion on it," Howe said.

Dish is already moving in that direction with its Sling TV offering, which lets customers stream TV content over mobile devices and costs around $20 per month for a basic package of channels. Yet it's unclear if a Dish/T-Mobile combination would mean that such a service would be exclusive for T-Mobile customers.

"You can also dismiss all the rhetoric about offering video over wireless," MoffettNathanson analyst Craig Moffett wrote in a research note on Friday. "If Dish were to offer Sling TV exclusively on their own wireless network they would starve it of subscribers, keeping it from ever achieving competitive scale for negotiating programming agreements. That's a non-starter."

Verizon Communications (NYSE: VZ) has the capability to offer quad-play services but does not push the offer. "It is very difficult for some reason in the U.S. to sell a quad play," Verizon Communications (NYSE: VZ) CFO Fran Shammo said at an investor conference last September. "Consumers buy TV and they buy wireless, and they don't think about really combining the two."

Moffett, who is dismissive of the logic of a Dish/T-Mobile deal, wrote that "you can forget bundling; nobody is waiting for a bundle of wireless and satellite TV, and in any case, since there are no cost synergies to be had in offering the two together; a bundle would be nothing more than an excuse to offer a discount. You don't need to do a merger to offer a discount." 

For more:
- see this WSJ article (sub. req.)
- see this MoffettNathanson blog post (sub. req.)

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