Just as I clicked “send” on my last blog, it became immediately irrevelant as DISH launched a new, higher bid for Clearwire, leaving Sprint/Softbank in limbo over the supposedly done deal to acquire the remainder of Clearwire. Since then, a multitude of chess pieces have moved, culminating in Softbank upping its offer for Sprint and, within the last week, Sprint launching a higher bid for Clearwire leaving it as the potential winner against DISH in the battle for the property.
With the dust slowly settling, Sprint will move from a deal-making stage to an execution/ integration phase while DISH will remain a shopper looking for an entry point into the U.S. wireless space. As far as what happens next in the U.S. wireless market, there are several significant plays that remain open for both DISH and Sprint the next six months, and no time is better than now for these to be realized.
With Sprint closer to locking up Clearwire and Softbank closer to closing on the bigger deal, DISH is left without a clear wireless alternative amid a dwindling number of options. DISH clearly needs and wants to make a move in the wireless space. Several options remain, and although none hold the power of a Sprint Clearwire deal, all hold either short-term or long-term potential, or both.
Option #1: Acquire T-Mobile
T-Mobile represents the last postpaid player of significant scale that DISH could pursue in order to gain an immediate and substantial foothold in the domestic wireless market. Like DISH, T-Mobile is in a position to be the aggressive, low-price and potentially game-changing competitor in the space, which would make for an immediate, and straightforward discount quad-play strategy (though unproven). Further, in addition to subscriber acquisition, the move would provide DISH with network assets. Although those assets need further development, the scope and scale of upgrades and expansion requirements would be significantly smaller than building network from the ground up.
On the other hand, questions exist with respect to near-term compatibility and cross-sale opportunities. Would T-Mobile’s primarily urban customer base (including the legacy Metro PCS base) find value in a quad-play incorporating satellite programming when most have cable and telco alternatives available? Is the “new” T-Mobile’s network coverage deep enough to support the majority of DISH’s customer base? The balance of these overlaps could not only determine the success of a quad-play strategy, but the level of value DISH could justify in acquiring T-Mobile’s assets. Still, a deal like this could prove to be a solid strategy, delivering both immediate customers and network assets and potential synergies to drive long-term growth.
Option #2: Acquire the spectrum assets of Lightsquared
It has long been rumored that DISH, along with hedge funds affiliated with DISH CEO Charlie Ergen, has been purchasing distressed debt in bankrupt player Lightsquared, setting the stage for DISH to potentially acquire Lightsquared’s assets.
The challenge with Lightsquared’s spectrum is the GPS interference issue that Phil Falcone and Harbinger Capital became so familiar with as they attempted to build an alternative wireless carrier. On the other side of the equation, Lightsquared’s assets represent a fresh canvas opportunity despite those key network development restrictions.
If you were to make a Ben Franklin list, your “pros” would include the lack of entrenched network technology or topology and the cons would include interference-based restrictions, the lack of an embedded base of customers and heavy costs of network development.
Looking at a longer-term time horizon of three to five years, Lightsquared’s spectrum could prove to be a solid asset for DISH, enabling the company to build out a wireless offering in parallel with its programming products. However, this move would not deliver an immediate solution to DISH’s wireless needs or deliver DISH a jump-start in the space. This play would likely need to be coupled with another deal for subscriber acquisition and wireless network expertise.
Option #3: Roll Up Regional Wireless Players
There remain many overlooked regional wireless players throughout the U.S. — U.S. Cellular, C Spire Wireless, Cincinnati Bell Wireless, Leap, nTelos, etc. — that could potentially be rolled up and augmented with additional spectrum to create a semi-national play. While this strategy would not deliver a significant near-term boost to DISH because of significant deal-making and integration requirements, it could provide DISH with in-house wireless expertise and also allow DISH to test its wireless hypothesis within a subregion of its coverage area. Further, while few rollups meet their financial targets, if such a strategy was executed successfully, it could create significant value over the long term. All in, this long-term strategy could be augmented through multiple avenues and provide a relatively low-cost entry into the wireless space, though at a subscale, regional starting point.
Option #4: Wholesale Partnership
The easiest entry point for DISH would be to develop a wholesale relationship with T-Mobile or Sprint (AT&T and Verizon would be off the table due to channel conflicts with their programming/content arms). Both Sprint and T-Mobile need additional pathways to subscriber acquisition, and a cross-marketing resale partnership with DISH along the lines of Verizon’s relationships with cablecos would open valuable new doors for either wireless player.
In the short term, this represents the most straightforward solution for DISH in terms of rapid wireless market entry. In the long term, this type of arrangement would not meet DISH’s goals of owning assets it can innovate or deeply integrate into its current ecosystem or set DISH up as a major long-term wireless player.
The Bottom Line
While it appears that both Sprint and Clearwire have escaped DISH’s grasp for the moment, there remain many potential strategic alternatives for DISH to pursue. With the long-term potential of a spectrum auction on the horizon, now is the time for DISH to establish a wireless market entry point.
Charlie Ergen put it best in a May 2011 earnings call: “We’re utilizing what I call the Seinfeld strategy … there are a lot of things that happen in the first 28 minutes [of the show] … but it seemed to all come together in the last couple of minutes. In terms of where we’re going strategically, you’ll have to just wait and see when it all comes together.”
Look for DISH to continue to make aggressive plays as it seeks an entry point in the wireless ecosystem. These moves may not redefine the space overnight, but depending on strategy and execution, they could facilitate long-term entry and have a meaningful impact on future business models.
Aaron Blazar works as a vice president for ATLANTIC-ACM on projects ranging from market sizing and forecasting to corporate strategy covering both the wireline and wireless telecom markets. He has a broad perspective on the telecommunications industry and expertise in market segmentation, market analysis, market entry strategies and statistical analysis.
This analysis originally appeared at B/OSS