Why DISH should be negotiating with Clearwire rather than bidding for Sprint

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DISH Network’s bid this week to acquire Sprint Nextel came as a surprise to most –  not least Japan’s SoftBank, which had  agreed last fall to buy a 70 percent stake in the company.

In a presentation explaining his bold vision for the company, DISH’s CEO Charlie Ergen detailed plans to provide seamless mobile access to subscription TV content (based around DISH’s Sling and Hopper technology), and a plan to offer fixed wireless broadband to the estimated 40 million households that lack access to high bandwidth fiber or cable networks. Crucially, the latter would be accomplished using a combination of Clearwire’s 2.5GHz spectrum as well as satellite broadband.

That’s the theory, but in practice commentators have questioned whether the leverage inherent in DISH’s bid – for what is a considerably larger company – will constrain the ability of a merged Sprint/DISH to invest in the Sprint network and implement these plans. Further, many expect that Masayoshi Son, the CEO of SoftBank, will outbid Ergen – despite his protestations to the contrary.  Ergen’s vision for DISH’s future is bold and exciting, but the question ultimately is whether Sprint is crucial to achieving it, and whether it can even work without Clearwire.

Sprint not a requirement for mobile delivery

With respect to the delivery of seamless mobile video, DISH already has most of the necessary technology available. After all, you can already use Sling on your mobile device today. The only real constraint is that the cost of wireless capacity makes it prohibitively expensive to watch mobile video on a metered 4G data plan. If DISH does indeed acquire Sprint, then it could potentially exempt Sling content from any data caps implemented for Sprint subscribers, thereby making seamless usage more feasible (and an attractive marketing point for potential new subscribers).

Nonetheless, there is nothing unique about Sprint’s network that makes it a necessary component to that strategy: DISH could just as easily shop its AWS-4 spectrum to T-Mobile for instance, which could  deliver a similar offering.

Wireless broadband crucial for success

Unlike DISH’s mobile video plans, which are responding to potential longer-term shifts in video consumption, DISH’s ambitions to deliver fixed broadband to the home appear to be far more critical to the near-term competitive position of its satellite TV business. Importantly, the entire plan appears to be predicated on the use of Clearwire’s spectrum for a national deployment. In particular, DISH is at a substantial disadvantage compared to cable and telco TV solutions, which offer integrated broadband and video-on-demand capabilities.

DISH has been attempting to acquire around 40MHz of spectrum from Clearwire since last summer, and it is hard to see where else it could hope to dig up that much spectrum for a fixed wireless broadband network, at a reasonable price – unless DISH uses its own AWS-4 spectrum. However doing so would limit Ergen’s leverage to strike a deal with a wireless operator. Alternatively, DISH could attempt to repurpose LightSquared’s spectrum, but that would be fraught with difficulties.

The greater flexibility DISH has in realizing its mobile video plans vs its fixed broadband ones suggests it may be far more important for it to acquire some of Clearwire’s spectrum than to buy all of Sprint right now. After all, if Deutsche Telekom is willing to strike a deal with DISH after completing its merger with MetroPCS, then Ergen could deploy the 2.5GHz Clearwire spectrum on T-Mobile’s network.

So the question is, might SoftBank agree to sell part of Clearwire’s spectrum to DISH, in exchange for DISH agreeing to withdraw its bid for Sprint? That would certainly be logical, but with two billionaires’ egos at stake, it’s never a given that the most rational outcome will prevail.

Tim Farrar is president of Telecom, Media and Finance Associates, a consulting and research firm in Menlo Park, Calif., which specializes in technical and financial analysis across the satellite and telecom sectors.He blogs on wireless and satellite issues at tmfassociates.com; follow him on Twitter @TMFAssociates.

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