Recently, The Wall Street Journal as well as Reuters reported that DISH Network Corp. (DISH) may consider a bid for T-Mobile US Inc. (TMUS) in the first half of 2014. In 2013, DISH lost to Softbank of Japan in its attempt to acquire Sprint Corp. (S). Earlier in 2011, the Federal Communications Commission (FCC) thwarted AT&T Inc.’s (T) attempt to acquire T-Mobile US, a subsidiary of Deutsche Telekom AG.
DISH, the second largest satellite TV operator in the U.S., has established an extensive wireless/satellite spectrum base over the last couple of years. In 2012, the company purchased 2 slots of the 40 MHz S-band wireless spectrum fromthe bankrupt TerreStar Networks Inc. and DBSD North America Inc. for a consideration of $2.9 billion. Moreover, the company owns a slot of 700 MHz airwaves.
DISH is one of the 34 contenders to bid for the Jan 2014 auction of PCS H Block wireless frequencies by the FCC. Furthermore, DISH also offered a bid to acquire 40 MHz of wireless spectrum held by LightSquared, which is currently bankrupt. This auction will take place this month.
We believe DISH’s attempt to enter the wireless market is a diversification strategy to counter pay-TV market saturation. DISH Network enjoys the opportunity to collaborate with several established telecom or tech companies to jointly establish a wireless network.
DISH estimates that its portfolio of wireless spectrums can be monetized for $10 billion. However, management is yet to take a final decision on its wireless venture.
Industry circle also reported that Sprint may also opt for T-Mobile US. However, we believe that a possible merger between DISH and T-Mobile US has greater potential to clear regulatory hurdles than the same between Sprint and T-Mobile US.
Notably, T-Mobile is the fourth largest telecom operator in the U.S. while Sprint is the nation’s third largest telecom operator. Verizon Communications and AT&T are the top two telecom operators.
In 2011, the FCC rejected AT&T’s bid for T-Mobile US, stating that it wants four nationwide telecom operators, to maintain competitiveness. If DISH acquires T-Mobile US, the number of telecom operators in the U.S. will remain at four while the figure will come down to three if Sprint executes the deal. DISH currently has a Zacks Rank #3 (Hold).
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