After its unsuccessful attempt to acquire wireless carrier Sprint (NYSE:S) earlier this year, Dish Network (NASDAQ:DISH) is considering making a bid for T-Mobile in early 2014.  Given the saturation in the U.S. pay-TV market, Dish has amassed wireless spectrum in the past few years and has ambitious plans in the wireless arena. According to some reports, Dish’s spectrum is worth around $10 billion to $12 billion.  The company can explore several options including launching its own wireless network, acquiring an existing carrier like T-Mobile U.S. or selling the spectrum. Acquiring T-Mobile would offer Dish network a ready-to-use infrastructure for the wireless network.
Interestingly, Dish is not alone hunting for T-Mobile. Sprint is also mulling a takeover of the fourth largest wireless operator and could make a bid in the first half of 2014 (read Sprint’s Potential Bid For T-Mobile Could Make For A Risky Merger). Sprint has more synergies with T-Mobile as both the companies have their network and infrastructure. Dish, on the other hand, only owns the spectrum and lacks the necessary infrastructure and expertise for building the network. This is where the acquisition of T-Mobile would help.
- Dish Launches Advanced DVR And Sling TV Gets A Makeover: Is The Company Ready To Fight The Media War?
- Raising Subscription Rates: Will Dish Network Lose More Subscribers In 2016?
- How Dish Network Is Innovating To Attract More Advertisers To Television?
- Why We Are Revising Dish Network’s Price Estimate To $77
- Why Dish Network’s Shrinking Customer Base Might Not Be A Bad Thing ?
- How Spectrum Strategy And Streaming Services Could Be Key For Dish TV’s Valuation
Opportunity In Wireless
Buying T-Mobile would allow Dish to offer video, high-speed Internet and wireless voice and data service across the country in one package. Currently, it offers video services but its satellite Internet service isn’t as fast as those from wired providers. The company wants to compete better in the saturated U.S. pay-TV market by offering a viable bundling option where it can combine its satellite service and wireless spectrum licenses with T-Mobile’s wireless capabilities, and offer consumers a convenient option of a single subscription. Dish could either build its own network, which would be expensive and time consuming, or buy an existing carrier like T-Mobile, which can provide ready-to-use infrastructure.
Dish sees this bundling potential as a growth opportunity which is not readily available in the Pay-TV market. Pay-TV penetration is currently very high, with more than 90% of the U.S. TV households subscribing. Given the saturation level and slowdown in the housing market, it is difficult to see a significant increase in the number of the U.S. pay-TV subscribers. Moreover, the cord-cutting phenomenon appears to be gaining momentum as consumers turn to cheaper alternatives. According to Sanford C. Bernstein, the U.S. pay-TV companies lost 400,000 net subscribers in Q2 2012, and the loss stood at 113,000 for the third quarter of 2013.   Even in the quarters when the industry grew, the growth was lower than the growth in the number of households, an indication that cord-cutting is still going on. 
Dish’s main satellite competitor DirecTV (NASDAQ:DTV), with the help of its exclusive packages and better customer service, has performed comparatively well over the last few years, and having bundled services could help Dish better compete. While the U.S. wireless market is also highly saturated, the demand for data services continues to increase and consumers are willing to pay for mobile Internet connectivity.
Dish’s management has been vocal about its wireless ambitions and said that it is willing to spend billions to enter the wireless industry as a way to boost Dish’s revenue growth.  Earlier this year, Charlie Ergen, chairman of Dish, informally approached Deutsche Telekom AG about a possible merger with T-Mobile U.S. However, during that time Deutsche Telekom announced a sweetened bid for MetroPCS Communications and talks with Dish were stalled.  Dish may now try to resume talks and negotiate with the German telecom giant.
T-Mobile U.S serves approximately 45 million subscribers generating revenues of over $21 billion.  It has an advanced nationwide 4G and 4G LTE network, in which Dish has significant interest. T-Mobile’s market value has recently increased to $21.8 billion since it purchased MetroPCS Communications Inc. If Dish were to acquire T- Mobile, it would become the fourth-biggest U.S. wireless provider, which T-Mobile already is; this acquisition may not bother regulators, as it would not eliminate one of the top four U.S. carriers. AT&T had to walk away from a takeover of T-Mobile in 2011 after regulators expressed concern about losing one of the industry’s largest companies and the resulting impact on competition. All eyes will now be on Dish and Sprint as they vie for T-Mobile, and it will be interesting to see how this story unfolds from here.Notes:
- Exclusive: Dish eyes 2014 bid for T-Mobile – sources, Chicago Tribune, Dec 18, 2013 [↩]
- Dish Acts to Boost Value of Spectrum, The Wall Street Journal, Sep 13, 2013 [↩]
- Evidence Grows on TV Cord-Cutting, The Wall Street Journal, Aug 7 2012 [↩]
- Cord-cutting: Pay-TV companies lose 113,000 customers in quarter, Los Angeles Times, Nov 12 2013 [↩]
- Hulu Wants to Be Offered With Pay-TV Bundles, The Wall Street Journal, Nov 12 2013 [↩]
- Dish Chairman Ergen’s Motives Questioned in Clearwire Bid, Bloomberg, Jan 10, 2013 [↩]
- Dish Is Said to Approach Deutsche Telekom About T-Mobile Bid, Bloomberg, Apr 13, 2013 [↩]
- T-Mobile U.S.’ SEC Filings [↩]