Dish's Ergen Gambles on US$ 25 Bil. Bid for Sprint

by Peter Galace

Englewood, Colo., April 19, 2013 -- Dish Network Corp. chairman Charlie Ergen is gambling big time again. He has just upped the ante on the bidding game for Sprint Nextel, the third-largest U.S. wireless carrier, to US$25.5 billion in an effort to elbow out Japan’s SoftBank US$20.1 billion offer. The move is a big Blackjack gamble that Ergen is used to but the deal is rife with danger. Even if Ergen wins this bet, it could end into a pyrrhic victory and bring Dish to the edge.  

Early this week, Dish submitted a merger proposal to the board of Sprint Nextel for a total cash and stock consideration of $25.5 billion. Dish asserted that its proposal represents superior value to Sprint shareholders, including greater ownership in a combined company that is better positioned for the future with more spectrum, products, subscribers, financial scale and new opportunities.

On Thursday, Japanese telco SoftBank asked the Federal Communications Commission to proceed with the review of their proposed purchase of 70 percent of Sprint despite a request of Dish for a suspension.

Sprint said its board will evaluate the Dish offer but told the FCC on Friday it was opposed to Dish's request to delay the review of the SoftBank agreement announced in October 2012.

"The Commission must not be distracted by Dish's latest maneuverings," Sprint said in a document addressed to the FCC. Reports say the FCC has already completed 140 days into its review of the process which normally takes typically 180 days.

On Monday, Ergen said a Dish/Sprint merger will create the only company that can offer customers a convenient, fully-integrated, nationwide bundle of in- and out-of-home video, broadband and voice services. He added “the combined national footprints and scale will allow Dish/Sprint to bring improved broadband services to millions of homes with inferior or no access to competitive broadband services. This unique, combined company will have a leadership position in video, data and voice and the necessary broadband spectrum to provide customers with rich content everywhere, all the time.”

Ergen’s big bet is based on the idea that by combining Dish pay-TV customers and Sprint’s cellular users, he could shake up the wireless business and he could land on top where Dish is currently the third, after DirecTV and Comcast, on the pay TV race, while Sprint is placing only third to Verizon Wireless and AT&T in the mobile business.

To some, the bet makes a strong case for foresight and fortitude. Many say satellite dishes are losing their relevance in the age of cellphones that play everything from YouTube videos to live TV. But by combining Dish’s 14 million pay-TV users with Sprint’s 47 million mobile-phone customers, Ergen could create a new pool of subscribers who can get all their video, voice, and Internet services from one place. The idea of providing TV viewers with a consistent experience, whether they’re inside their homes using a satellite dish or outside using wireless networks, seems to make perfect sense.

 During the past three years, Dish has been able to lure TV subscribers with better deals, but its subscribers remained flat. Unfortunately for Dish and also its rival DirecTV, their satellite dishes have not been proven to provide super fast Internet access. In the meantime, their cable competitors have been able to lure more customers by offering TV, faster Internet and phone bundles.

To stay competitive, Ergen had been trying to partner with cellular companies to allow it to have greater access on the airwaves, or the so-called spectrum rights, used by cellphone companies and wireless broadband operators.  

Earlier this month, Dish offered up to $2.3 billion in senior notes to create a nationwide 4G LTE network capable of rivaling AT&T and Verizon. The move would enable Dish to shore up its spectrum acquisition by partnering, for example, with Clearwire Corp., a provider of 4G wireless broadband services. Sprint Nextel Corp. already owns at least 50 percent stake in Clearwire, which could have limited Clearwire's ability to sign a deal with Dish. But no problem, if Dish couldn’t take a chunk of Clearwire, it might as well get Sprint.

Dish had long been trying to partner with Clearwire because it holds one of the deepest portfolio of wireless spectrum available for data services in the U.S. serving retail customers through its own Clear brand. It also sells wholesale with some of the leading companies in the retail, technology and telecommunications industries, including Sprint and NetZero.

Some experts however are showing skepticism of the success of Dish Network’s bid offer. They say duopoly players Verizon and AT&T are experienced operators and won’t take the challenge sitting down. In a war of attrition, Verizon and AT&T could engage the combined Dish/Sprint in an unhealthy price that could potentially clobber the merged company.

In a world that is changing every minute of the day with new technologies, new players, and better ideas, nobody for sure knows what or who will come out next to rule the telecom and broadcasting industries. So now, this could just be another betting game with no clear winner yet…until the new wave of change comes along.

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