T-Mobile/Sprint could pave the way for Dish to enter the wireless market: Barclays

Dish Network
Concessions could help Dish launch service as an MVNO

A merger of T-Mobile and Sprint could pave the way for Dish Network to finally enter the U.S. wireless market, according to Barclays.

Shares of both T-Mobile and Sprint shot up Tuesday following a report by CNBC that the parent companies of both carriers “are in active talks” about joining forces. Deutsche Telecom and Sprint parent SoftBank “have been in frequent conversations” regarding a stock-for-stock tie-up that would see Deutsche Telekom become the majority owner of the combined carrier. Details are still being negotiated, according to unnamed sources familiar with the negotiations.

While industry insiders believe such a deal would be much more likely to gain regulatory approval under Donald Trump’s administration that it would have under Barack Obama’s White House, a green light would be no sure thing. Cowen & Company Equity Research this week pegged the chance of an announced deal between the two players at 60% to 70%, for instance, but said the chance of approval would be roughly even.

So the two carriers would likely need to make some significant concessions to push it through, Kannan Venkateshwar of Barclays wrote this week in a note to investors.

“As we have highlighted in the past, given past concerns at the Department of Justice around a three-player telecom market, the approval of such a deal should not be taken for granted,” Venkateshwar noted. “While political realities may make the path easier today than would have been the case last year, we believe this is likely to need the combination to offer significant concessions. This is also likely to be important in light of hurdles that could be created by companies like Dish which could in theory litigate to make the path for a Sprint/T-Mobile combination more painful than it needs to be.”

Dish has no wireless network, of course, and it could claim the tie-up could hurt its ability to strike an MVNO deal with an established carrier. And the sheer scale of the combined carrier could weaken its ability to negotiate handset deals with manufacturers.

The satellite TV provider may use those arguments to press for favorable concessions, Venkateshwar said.

“In our opinion therefore, if Sprint and T-Mobile do look at combining their businesses and hope to achieve this in a realistic time frame, they would need to address competitive concerns either by making available competitive MVNO arrangements to new players who want to enter the industry and/or providing at least some of Sprint’s excess spectrum,” he wrote. “With Dish now owning critical component pieces of spectrum required to run a network, an ability to leverage the combined network of Sprint/T-Mobile could offer Dish the ability to enter the wireless business without having to invest in infrastructure…. Dish could then essentially launch its own service or lease this network on a wholesale basis to any third party that wants to enter wireless.”