A Dish-Clearwire Deal Makes Sense for All Parties

Dish Network (NASDAQ:DISH) may consider partnering with or buying a wireless carrier such as Clearwire (NASDAQ:CLWR) or Sprint (NYSE:S), according to a report from Bloomberg. ^[1] Earlier this year, Dish purchased TerreStar Networks and DBSD North America out of bankruptcy. Dish now wants to make use of the spectrum that it acquired from these companies by partnering with or acquiring a wireless network. If Dish were to acquire Sprint or Clearwire, we believe that unlike the AT&T (NYSE:T)/T-Mobile deal, this transaction would not create regulatory issues. Sprint’s stock jumped by more than 5% on this news; our $4.80 price estimate for Sprint stock is about 50% above the current market price.

AT&T/T-Mobile deal mired in controversy

Ever since AT&T announced its plans to acquire T-Mobile for $39 billion in March, the issues for AT&T have continued to pile up. Initially the FCC created an obstacle by asking AT&T to justify the need for such a massive purchase of spectrum. Then the U.S. government filed an antitrust lawsuit to block the proposed deal, saying it would hurt competition in the U.S. wireless market.

Sprint or Clearwire acquisition should not concern regulators

Unlike the AT&T/T-Mobile deal, a Dish/Sprint or Dish/Clearwire deal would not raise any antitrust issues as Dish would be a new player in the wireless market and thus the number of players wouldn’t be reduced.

Moreover, Clearwire is in need of funding and has publicly announced that it is looking to raise between $150 million and $300 million for the maintenance of its existing WiMAX network and $600 million to begin the roll out of its LTE network. ^[2] To that end, the company recently had discussions with carriers such as Verizon (NYSE:VZ), AT&T and MetroPCS (NYSE:PCS) about a possible sale of the company’s excess spectrum (see Telecom Weekly Notes: AT&T, Clearwire and Verizon).

We believe that a partnership with Dish would be a more sensible way for Clearwire to raise cash as opposed to selling spectrum, which is its most valuable asset. Additionally, such a partnership would be a positive for Sprint as it could reduce or even eliminate the need for any additional investment in Clearwire.

See our complete analysis for Sprint stock here

1. Dish ‘Could’ Buy, Partner With Wireless Company, Bloomberg, September 24th, 2011 [↩]
2. Clearwire Q2 2011 earnings conference call transcript, SeekingAlpha, August 4th, 2011 [↩]