Joseph Palenchar On Apr 22 2013 - 12:00am

Analysts Review Pros, Cons Of Sprint, Dish Deal

 

NEW YORK – Dish’s bid to purchase wireless carrier Sprint Nextel could be very good for Dish, but some analysts contend Sprint doesn’t need Dish and might be better off under SoftBank ownership.

Dish also faces challenges in implementing some of its vision, some analysts said, basing their opinion on past failures by cable-TV providers to successfully sell cellular service and the failure of Media Flo in offering a national linear-TV service to cellular handsets.

Last year, SoftBank reached an agreement with Sprint to purchase a 70 percent stake in the carrier for $12.1 billion plus an infusion of $8 billion in new capital. Last week, in an unsolicited bid, Dish offered to pay $17.3 billion in cash and $8.2 billion in stock to merge with Sprint. The merger would create a single company that could offer voice, broadband and TV service to the home and to mobile devices. Sprint shareholders would own 32 percent of the merged company.

For the satellite-TV provider, a merger would enable it to offer a triple-play package of linear satellite-TV service and, via rooftop cellular antennas, nationwide highspeed residential broadband and voice service. The package would enable Dish to compete more effectively with local cable and telecom operators, analysts said.

If SoftBank chooses not to counterbid, a Dish- Sprint merger would also help Dish develop mobile cellular service into a new revenue source as it did with its acquisition of Blockbuster’s Internet video service and video-rental stores. Dish would be able to tap into Sprint’s network-building know-how to put its 45MHz of 2GHz and 700MHz spectrum into commercial service. More important, Dish would gain the use of Sprint’s 60MHz of nationwide spectrum and Clearwire’s 210MHz of spectrum. Sprint owns a majority of Clearwire, though it doesn’t control Clearwire’s board, and has an agreement to purchase the remaining Clearwire shares that it doesn’t own.

Dish also promised that merging some operations will save $1.3 billion per year in operating efficiencies in the first year outset and $1.8 billion per year within three years, although SoftBank also promised efficiencies by purchasing mobile devices in larger volumes.

Dish’s 2012 revenues grew only 1.6 percent to $14.3 billion. Net profits were $637 million, down 56 percent. Sprint Nextel’s revenues grew 5 percent in 2012 to $35.3 billion, but the company posted a net loss of $1.3 billion.

For Sprint shareholders, an acquisition by Dish would be more lucrative than SoftBank’s bid, but for the Sprint business itself, ownership by Dish doesn’t appear to offer advantages over ownership by Soft- Bank, some analysts said. “Sprint [under SoftBank] could do anything that [Dish chairman Charlie] Ergen could do,” said Roger Entner, principal of Boston-based Recon Analytics. In fact, given SoftBank’s deeper pockets, Sprint might be better off with SoftBank as its parent, he said. “Can Ergen put in the money to improve the [Sprint] network like SoftBank can,” he asked.

With its massive amount of spectrum, Entner added, Sprint/Clearwire could offer the mobile video services that Dish envisions. Under SoftBank, Sprint might not be able to offer a national quad-play bundle of mobile services and home TV, broadband and voice service, but such bundles haven’t been sold successfully in the past, he noted.

Overall, Entner contended, Dish needs Sprint’s spectrum more than Sprint needs Dish’s spectrum. With Clearwire’s spectrum included, Sprint already has access to 270MHz of spectrum, easily exceeding the 100MHz owned by Verizon and the 100MHz owned by AT&T, he said.

For his part, however, Informa principal analyst Mike Roberts called Dish’s bid “stronger than SoftBank’s both strategically and financially.” Most important, he said, is the ability of Dish “to combine its 2GHz LTE spectrum with the LTE spectrum of Sprint and Clearwire to build one of the strongest LTE spectrum portfolios in U.S., which would be the foundation for a powerful new competitor in the U.S. telecoms market.” Second, he said, Dish could use Sprint’s newly modernized network of base stations as a “cost-effective way to deploy LTE in its 2GHz spectrum and meet the FCC’s rollout requirements.” Third, Dish and Sprint together “could quickly offer TV, broadband and mobile bundles to compete more effectively with larger integrated telecoms players such as Verizon and AT&T.”

Although SoftBank could implement synergies with Sprint, including the ability to combine mobile-device purchases to cut costs, “pulling off a long-distance merger would be a massive challenge,” he said.

Advantages accruing to both Dish and Sprint include the ability to crosspromote products, ability to leverage both brands’ value position, and expansion into new retail channels, some analysts added. Dish service could be sold through Sprint-owned stores, and 5,300 retail outlets selling Dish could be tapped to add Sprint service.

For Dish, IHS iSuppli sees many benefits, including Dish access to “the essential bandwidth required to take a leadership position in multiscreen services.” IHS defined multiscreen services as delivering video to multiple platforms beyond TVs connected to set-top boxes, including smartphones, media tablets, portable media devices, video game consoles, personal computers and Internet-enabled televisions (IETVs).

“Beyond the greater scale and efficiency that a combined carrier would bring, Dish sees the possibility to offer content both in and outside the house as a clear path to leadership for the company, [given that] the explosion in data traffic is being led by video demand,” said Dexter Thillien, IHS’s mobile communications senior analyst.

“The satellite pay-TV provider has always wanted to enter the wireless space because it can diversify its current offerings and because wireless has seemed to be the most sustainable path to growth in the U.S. market,” Thillien continued. “Dish has acquired spectrum over the years, but the company was always aware it needed a partner to launch services given that rolling out a network from scratch would have taken too much time and money.”

By owning and controlling Sprint, “Dish could create the first compelling quad-play opportunity in the U.S. market,” he said. Cross-selling each other’s services would also yield “lower costs for acquisition, retention and marketing.” However, he pointed out, “other converged operators have yet to offer strong offers bundling both fixed and wireless services.” Cable companies, for example, “have abandoned their wireless aspirations and have decided to enter partnerships with Verizon as part of their spectrum deal, while AT&T and Verizon have not pushed quad-play — even in areas where they offer fiber services.

Thillien also pointed out that while Dish plans to offer LTE broadband service to homes, the company “will have to compete with similar fixed-wireless LTE services, which both AT&T and Verizon will look to roll out to more areas as they further reduce investment into fixed networks.”

As for delivering mobile TV to handsets, Dish would use its current 700MHz spectrum to implement a 4G LTE broadcast service that transmits programming on a oneto- many basis rather than a one-to-one basis to conserve spectrum, IHS noted. “If Dish decided to bundle video services as part of an overall plan for end users, this could create strong competition for the other carriers that have attempted to monetize data through either add-ons or greater usage with data caps,” Thillien noted. Dish can also leverage the large amount of Sprint/Clearwire spectrum to offer unlimited out-of-home video services, whereas other national carriers have less spectrum to devote to a broadcast LRE service, he noted.

However the competing bids shake out, Thillien added, “Sprint will have a new owner by the end of the year.”

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