Dish shook up the wireless market today with a $25.5 billion offer to buy Sprint, arguing that the deal it has put on the table is worth 13% more than the current Softbank offer. But beyond the size of the deal, Dish has a compelling argument in terms of the synergies of both companies. Dish has spectrum waiting to be used – something that Sprint could clearly benefit from – as well as a large customer base in the U.S. market. By contrast, as we noted when Softbank made its initial bid for Sprint, there are fewer obvious benefits of a Sprint/Softbank deal. But more importantly, this is the first case of a Pay TV operator buying into mobile telecom, rather than a telecom company moving into Pay TV, a case of “man bites dog” compared to the more usual outcome.
Both Sprint and Dish have led interesting mobile lives over the past few years, with each experiencing its own rollercoaster rides. One the one hand, there’s the Sprint saga with its highs – the Softbank acquisition and related purchase of Clearwire (a mini-rollercoaster ride all on its own) – and lows such as the struggle to recover from the Nextel acquisition. On the other hand, there’s the shorter, but far faster, Dish ride, which includes scooping up spectrum and subsequent offers to buy first Clearwire, then MetroPCS, possibly T-Mobile and now (perhaps the final move?) Sprint.
A Dish/Sprint company could provide a very compelling mobile solution tied less around phones per se and more around the distribution of content in its many variations. The resulting company would have broadband, mobile and satellite delivery mechanisms, with which to drive new solutions (particularly video) to a wider audience. Services such as Dish’s Hopper and Sling are well positioned to become part of a unified solution allowing consumers to watch content on multiple platforms both in and out of the home, a trend that we are already clearly seeing (70% of smartphone users watch some degree of video on their devices today according to the Connected Intelligence SmartMeter) but where there is the potential for far more innovation.
Add to this the drive towards an LTE infrastructure, which will be an IP-centric solution, rather than the current combination of old-school telecom transport methods with newer data-focused networks, and Dish seems to have picked the ideal time to buy into the mobile world with a content-first strategy.
Of course, Sprint may feel somewhat leery of any tie-up with cable-type companies. The telecom company has tried such an approach in the past with its “Sprint Spectrum” partnership with cable companies. That joint venture floundered, but one could argue that the failure was due to multiple agendas and a vision that was well ahead of the network technologies required to drive a content-focused solution. Instead, the result was a basic “quad play” (home phone, broadband, TV, and mobile) option that has never really resonated with the consumers.
Further, both Sprint and Dish need each other: AT&T and Verizon both have content (TV) services to provide a content-driven solution, and Verizon additionally has a partnership with key cable companies. As a result, while we described the Softback/Sprint deal as an “Odd Couple,” the Dish/Sprint deal is closer to that of a shotgun wedding where both sides understand the pure necessity of the marriage.
But it could easily still fall apart for Dish. In many respects, this is a long-shot offer. Yes, the deal may be with more in terms of the deal size, and (potentially) long term synergies, but Softbank is already well on the path to completing the Sprint acquisition; a current financing agreement means that Softbank paid $3.1 billion for a convertible note that it can turn into 20% of Sprint’s shares. Further, the Softbank deal will allow Sprint to keep a significant level of autonomy and control; the same may not be true with the Dish deal.
If Dish fails to secure the Sprint deal, then all eyes will be on T-Mobile. Either that, or Dish will have to back off its wireless aspirations and look to sell its spectrum holdings. Such a move would ensure that the current telecom status quo exists, just when a new rollercoaster ride is required.