It’s increasingly clear that Charlie Ergen covets wireless spectrum.
And if the satellite-TV pioneer becomes a player in the highly competitive mobile-communications industry, Sprint Nextel could be his partner of choice.
In the process of closing a deal for a swath of airwaves that could be used for cellular broadband and voice services, Ergen revived efforts last week to land another block of spectrum by proposing to acquire bankrupt TerreStar Networks for nearly $1.4 billion. His previous attempt to gain control of TerreStar was cancelled by both parties in February.
The chairman of satellite-TV provider Dish Network and its sister company, EchoStar, hasn’t revealed his plans for the spectrum.
But he’s indicated that Dish would likely team up with an established wireless firm if it should enter the mobile-communications business.
UBS analyst John Hodulik said that partner would probably be Sprint, the first nationwide wireless carrier to launch a 4G, high-speed Internet network in the U.S.
Sprint is updating its 4G strategy with a project called Network Vision, opening the doors for new partnerships and different technologies.
“With Sprint’s new Network Vision infrastructure, it is the likely partner were Charlie to build out a terrestrial network,” Hodulik said.
Sprint collaborates with Clearwire on its existing 4G service, which uses WiMax technology.
Verizon and ATT, the nation’s largest cellphone service providers, have embraced Long Term Evolution technology for their 4G networks.
The LTE versus WiMax battle is similar to other format wars, such as Blu-ray versus HD DVD. Industry support is vital, and Blu-ray ultimately claimed victory as companies such as Sony and Apple threw their weight behind the standard.
At this point, it appears LTE is garnering more support from the telecommunications industry. The GSM Association, an alliance of nearly 800 mobile network operators worldwide, is a proponent of the technology.
Hodulik said if Sprint were to switch to LTE, it would need more spectrum. That’s an asset Ergen is piling up.
Spokesmen for Dish and Sprint declined to comment on a potential partnership.
On Friday, Bloomberg News reported that Sprint has reached a 15-year deal to jointly build an LTE network with LightSquared, a company founded by hedge-fund billionaire Philip Falcone.
LightSquared said last year that it planned to light up the 4G network during the second half of this year, with Denver among the handful of trial markets. The company, which would operate its network as a wholesaler, has been on Ergen’s radar.
“We’re watching closely what LightSquared does,” Ergen said during a conference call with analysts in May. “I think our spectrum fits nicely with them.”
Lack of bundle a big disadvantage
Unlike cable-TV competitors, Douglas County-based Dish doesn’t have its own high-speed Internet offering to pair with its video service.
That’s a major disadvantage as consumers have turned to bundles of services from one provider for discounts and convenience. Those who are ridding themselves of pay-TV altogether still must keep their home broadband service to access video alternatives such as Netflix.
Satellite broadband, a service Ergen has in his playbook with EchoStar’s recent acquisition of Hughes Communications, is slower than wireline service and is geared toward rural consumers.
On the other hand, mobile broadband offers speeds that are comparable to wireline service, though coverage is spotty as carriers continue to build out their 4G networks.
“There’s huge upfront capital costs to get into that game unless you partner with somebody,” said Steve Clement, analyst with Pacific Crest, “and I think that’s the route (Dish) would ultimately take if they do get into that business.”
Sprint chief executive Dan Hesse reportedly told Congress in May that the nation’s No. 3 wireless carrier may be acquired if ATT’s proposed merger with No. 4 carrier T-Mobile is approved.
Joe Clayton, who officially replaces Ergen as Dish chief executive Monday, said last month that he doesn’t believe Ergen’s recent acquisition binge is over.
In addition to pending deals for wireless-spectrum owners DBSD and TerreStar, Dish purchased video-rental chain Blockbuster in April.
Would a Dish takeover of Sprint make sense?
Such a deal would be similar in some aspects to the recent CenturyLink-Qwest merger. Thanks in part to a high stock price, the smaller CenturyLink was able to gobble up debt-laden Qwest in a stock swap.
Sprint is saddled with about $16.3 billion in long-term debt and generates about $32 billion in annual revenue. The company’s stock hovered around $5 a share late last week, giving it a market capitalization of about $15 billion.
Dish generates less than half of Sprint’s annual revenue, but its market value stands at about $12 billion, with shares hovering around $28 last week. Dish has $6.5 billion in long-term debt.
A number of options
Ergen may ultimately decide to unload the spectrum to a wireless carrier for a profit and continue to resell Internet and phone services from the likes of Verizon and ATT. His deal for TerreStar isn’t certain, as other bidders could step forward for the June 30 auction.
Sprint had been expected to reveal details about its new 4G strategy by July 1, but the announcement could be delayed several weeks, according to UBS analyst Hodulik.
BTIG Research analyst Walter Piecyk said No. 1 satellite-TV provider DirecTV could pursue Dish to consolidate the market. The companies flirted with merging in the past, with regulators blocking a proposed deal in 2002.
Piecyk said Dish “would also be an attractive acquisition target of ATT and Verizon because (Dish) could provide out-of-market pay-TV services that those companies could bundle with broadband wireless.”
ATT and Verizon’s existing video services are generally limited to their landline phone territories.
ATT has long been rumored to have interest in Dish, and Ergen’s moves for wireless spectrum have revived that speculation.
“Dish is aggregating valuable spectrum positions that ATT and Verizon could use to handle the growing capacity demands,” Piecyk said.
Wireless spectrum players
Chairman: Charlie Ergen
•Headquarters: Douglas County
•Nation’s No. 2 satellite- TV provider with more than 14 million subscribers
•Purchased Blockbuster video chain in April
•Has proposed to acquire DBSD and Terre Star Networks, bankrupt satellite technology companies that own blocks of wireless spectrum
•Headquarters: Douglas County
•Makes set-top boxes for pay-TV providers and offers satellite services
•Owns Sling Media, maker of Slingbox, and satellite-broadband company Hughes Communications
Chief executive: Dan Hesse
•Headquarters: Overland Park, Kan.
•Nation’s No. 3 wireless carrier with 51 million subscribers, including 33 million contract subscribers
•Majority owner of Clearwire, a wireless broadband company