Bloomberg News

Dish’s T-Mobile Ambitions Seen Avoiding Rules Quagmire

April 13, 2013

Dish Network Corp. (DISH:US), which is said to be interested in a T-Mobile USA Inc. merger, is in a position to usher in the next wave of wireless-industry consolidation while assuring regulators that competition will be preserved.

Dish Chairman Charlie Ergen informally approached Deutsche Telekom AG (DTE) about a possible merger with the German company’s T- Mobile division -- a transaction that would let him bundle wireless service with his satellite-TV offerings, people close to the situation said yesterday.

Such a deal would sidestep the concerns that foiled the last T-Mobile takeover in 2011, when AT&T Inc. failed to overcome regulatory opposition to the $39 billion deal. That merger would have unified the second- and fourth-largest carriers, eliminating one of the market’s top service providers. Dish, meanwhile, is a satellite-TV company with no mobile-phone customers of its own, though it does own wireless spectrum.

“The FCC has been clear, as long as there are no customers involved in the deal and it’s just spectrum, they have been supportive,” said Roger Entner, an analyst with research firm Recon Analytics LLC in Dedham, Massachusetts.

The Federal Communications Commission chairman and the Justice Department lined up against the AT&T deal in 2011, prompting the carrier to walk away from the merger. The transaction would have created the nation’s largest mobile-phone company, surpassing Verizon Wireless.

Ergen’s Offer

Ergen made his T-Mobile proposal sometime before April 10, when Deutsche Telekom announced a sweetened bid for MetroPCS Communications Inc. (PCS:US), according to the people. Deutsche Telekom might consider Dish’s proposal, though only after the transaction with MetroPCS closes and after verifying that a separate deal with Sprint Nextel Corp. (S:US) isn’t feasible, said the people, who asked not to be named because the talks are private.

Philipp Schindera, a spokesman for Bonn-based Deutsche Telekom, declined to comment, as did Dish spokesman Bob Toevs and Sprint representative Scott Sloat.

Dish’s move is the latest twist in a frenzy of consolidation for the U.S. wireless industry. Smaller carriers are seeking out merger partners to help wage a stronger attack against the two dominant competitors, Verizon and AT&T. Dish and Sprint both held talks with MetroPCS before that company agreed to its merger with Deutsche Telekom’s T-Mobile in October, people with knowledge of the discussions said last year.

Softbank Investment

Since then, Japan’s Softbank Corp. agreed to pay Sprint $20 billion for a 70 percent stake, giving the U.S. carrier more money to make its own deals. In December, Sprint announced plans to buy out the remaining shares of Clearwire Corp. (CLWR:US), its network partner, for $2.97 a share. A month later, Dish made a counterbid for Clearwire, offering $3.30 a share. The satellite company faces an uphill fight in that effort because Sprint already owns more than half of Clearwire’s stock.

Dish shares (DISH:US) rose 2.7 percent to $37.63 yesterday after Bloomberg reported on Ergen’s outreach to Deutsche Telekom. The German company’s U.S. stock climbed 2.3 percent to $11.75, while MetroPCS advanced 1.9 percent to $11.52. Sprint, based in Overland Park, Kansas, was little changed, closing at $6.22.

Waiting until it completes the MetroPCS transaction to consider Ergen’s offer would mean T-Mobile would already be a publicly held company with 42.3 million customers. Deutsche Telekom is doing a reverse merger with MetroPCS to allow T- Mobile to start trading on the New York Stock Exchange without an initial public offering. The deal combines the fourth- and fifth-largest U.S. carriers, though the resulting company will still rank well behind Verizon, AT&T and Sprint.

Sweetened Bid

That agreement, which was initially reached in October, was criticized by investors who said it loaded up the new company with too much debt. Deutsche Telekom sweetened the terms earlier this week by reducing the debt load. The changes won the support of MetroPCS’s largest shareholder, Paulson & Co., and other investors. Richardson, Texas-based MetroPCS will hold a vote on the merger on April 24.

For Ergen, the billionaire founder of Englewood, Colorado- based Dish, the goal is to break into the wireless business -- part of a plan to decrease its reliance on the slowing satellite-TV market. Dish has accumulated a record $10 billion in cash, partly (DISH:US) by selling bonds over the past year, giving it a war chest to expand into the new industry. Ergen’s $17 billion company now has the most money among U.S. television and phone providers, according to data compiled by Bloomberg.

Money Pile

Ergen’s cash stockpile -- about the same size as Exxon Mobil Corp.’s hoard -- puts a deal for T-Mobile within reach, said Guggenheim Partners LLC. A smaller purchase, such as buying Leap Wireless International Inc., also is a possibility, according to Macquarie Group Ltd.

Sprint, meanwhile, held talks with Deutsche Telekom about a merger with T-Mobile USA as early as 2011, people familiar with the discussions said at the time. The two parties couldn’t reach an agreement on price, the people said.

Another option is for Dish and Sprint to team up. While that scenario could be attractive to the satellite company, T- Mobile may be a more willing partner, said Vijay Jayant, an analyst at ISI Group in New York.

“It’s tough to be the fourth player in an industry,” Jayant said. “Sprint has a better outlook than T-Mobile. It’s easy to be the third player. To be the guy after the third-best guy isn’t a great position to be in.”

To contact the reporters on this story: Alex Sherman in New York at asherman6@bloomberg.net; Scott Moritz in New York at smoritz6@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net

To contact the editors responsible for this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Nick Turner at nturner7@bloomberg.net


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Companies Mentioned

  • DISH
    (DISH Network Corp)
    • $62.2 USD
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