Sprint Nextel Corp. (S) has approached Dish Network Corp. (DISH) about a partnership that would allow the satellite-TV company to offer mobile-phone service over the carrier’s network, two people familiar with the matter said.
Under the potential arrangement, discussed in recent months, Sprint would get access to Dish’s mobile airwaves, which aren’t currently being used, the people said. The companies could then share revenue from customers who sign up for a Dish wireless service, or Dish may pay Sprint a fee to use the network, according to one of the people, who asked not to be named because they aren’t authorized to speak publicly.
The deal would vault Dish into the mobile-phone market without it having to build its own network, letting the company offer wireless service to its 14 million satellite-TV customers. Dish, which publicly expressed interest in such partnerships, said it won’t make a decision on the matter until a regulatory ruling on its airwaves that may come as soon as next week.
“A Sprint partnership may be the best possibility,” said Tim Farrar, an analyst with TMF Associates Inc. in Menlo Park, California. “It could be quite disruptive.”
Joe Clayton, chief executive officer of Englewood, Colorado-based Dish, declined to discuss talks with Sprint beyond saying, “We speak with everybody.” Discussions with partners are on hold for now while Dish waits for a government ruling on how it can use its spectrum, he said in an interview. The Federal Communications Commission is slated to discuss the issue at a meeting on Dec. 12.
Dish shares rose 0.9 percent to $37.68 today in New York, reaching their highest closing price since 2007. Sprint fell 0.7 percent to $5.69.
Sprint also declined to comment on Dish, though it said the company is generally interested in partnerships that would give it access to airwaves. “We are open to spectrum-hosting opportunities with other spectrum holders who can’t or don’t want to build a network for their spectrum,” said Scott Sloat, a spokesman for Overland Park, Kansas-based Sprint.
While a Dish partnership would have to be approved by Softbank Corp. (9984), which agreed in October to buy a controlling stake in Sprint, an accord could be reached before regulators sign off on that deal, one of the people familiar with the matter said.
For Sprint, the partnership is one of several actions the No. 3 carrier is considering to help it challenge market leaders Verizon Wireless and AT&T Inc. (T:US) The investment from Softbank will provide Sprint with an $8 billion cash infusion, giving the carrier money to make deals.
Sprint already has a spectrum-sharing joint venture with Clearwire Corp. (CLWR), the Bellevue, Washington wireless broadband wholesaler. Clearwire’s shares fell 5.5 percent to $2.39 today.
Sprint CEO Dan Hesse has already made smaller deals for spectrum, including a $480 million purchase of U.S. Cellular Corp.’s airwaves and customers in the Midwest. The company also has considered making a counteroffer for MetroPCS Communications Inc. (PCS:US), a prepaid mobile-phone carrier that agreed in October to merge with T-Mobile USA Inc., people familiar with the matter said that month.
Dish, meanwhile, has built up its spectrum holdings to decrease its reliance on the satellite-TV business, which is losing subscribers. The company’s chairman and co-founder, Charlie Ergen, said in October that he had given up ambitions of building his own wireless network and was now focused on forging a partnership with another company in the industry.
In August, Dish offered about $4 billion to acquire MetroPCS, according to a person familiar with the matter. MetroPCS turned down the bid.
T-Mobile USA’s subsequent merger with MetroPCS and Softbank’s deal with Sprint delayed “meaningful conversations with those players as they pursue their own regulatory approval process,” Tom Cullen, Dish’s executive vice president, said in a conference call in November.
To help Dish get its feet wet in the mobile industry, the company’s Blockbuster video chain, acquired in a bankruptcy sale last year, will begin selling mobile phones in its movie-rental stores, people with knowledge of the matter said this week.
An alliance could help Dish and Sprint contend with mounting competition. Verizon has formed a pact with cable companies, including Comcast Corp. (CMCSA) and Time Warner Cable Inc. (TWC:US), to sell each other’s products. That means the cable providers can add mobile service to their current product bundles of TV, landline phone and high-speed Internet access.
Even so, a Dish-Sprint partnership would have to overcome tensions between the two companies, which have sparred over the issue of wireless interference.
Sprint has said a portion of Dish’s spectrum should operate with a lower signal power so that it doesn’t interfere with the adjacent frequency, called the H block. The H block airwaves are slated to be auctioned off by the government.
In a letter to the FCC this week, Dish agreed to allow a portion of its spectrum to be used as a so-called guard band to preserve the H block. Sprint responded that Dish’s new proposal still “would substantially reduce” the value and utility of the block of frequencies.
Even if the FCC sides with Sprint, Dish will still get the go-ahead to use its spectrum in some capacity, Stefan Anninger, an analyst at Credit Suisse Group AG in New York, said in note this week to clients. That’s good news for the satellite provider because Dish will finally be able to use the airwaves for mobile-phone service, he said.
Sprint and Dish may both bid on the H block at the FCC-run auction, which could happen as soon as next year. The government would receive the proceeds, potentially worth billions of dollars, according to the FCC.
The acrimony won’t necessarily stop Dish from forging a deal with Sprint, said TMF Associates’ Farrar. Ergen, Dish’s chairman, has had testy relations with partners in the past while still maintaining ties with them.
“It would be very much like Charlie Ergen to fight to the last drop of blood and then partner with them,” Farrar said.
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