Imaginations are running wild following last night’s Wall Street Journal report that Dish Network and T-Mobile are engaged in “formative stage” merger talks. Dish shares are up 5%, and T-Mobile’s up 4% after touching a new high, as people contemplate a company run by two of the most intriguing CEOs in business: Dish’s Charlie Ergen and T-Mobile’s John Legere.
At the most basic level, some believe that the union of the No. 2 satellite company — which has been amassing airwave spectrum rights — and No. 3 mobile provider would create a wireless powerhouse that could compete with cable by packaging video, broadband, and voice services. They could offer T-Mobile’s 56.8 million mobile customers a sweet deal by including Dish’s Sling TV streaming service.
Dish also would be able to build Sling into “a highly efficacious ad platform” where marketers could target viewers by location and other metrics, Brean Capital’s Todd Mitchell says. “At scale this could generate very high CPMs [unit prices] for programmers, which should help Dish to secure content for Sling TV at highly competitive costs.” Even if Dish didn’t land the lowest prices from programmers, with its relatively inexpensive wireless transmissions it still “could under-price anyone in the market while benefiting from ubiquity and segmentation.”
Federal regulators likely would have no problem with a Dish-T-Mobile merger, especially since they don’t compete with each other, Guggenheim Partners’ Paul Gallant says. The Obama administration doesn’t want a Verizon and AT&T wireless duopoly. “Adding Dish’s spectrum and video assets/expertise would clearly make T-Mobile a more formidable competitor.”
One possible hitch, though, is that Dish “likely would want to use stock as part of the deal,” Cowen and Co’s Colby Synesael says. That might not work for T-Mobile owner Deutsche Telekom. It wants to “exit or meaningfully reduce its exposure” to the business here. And Dish stock, up 22% since October, might look expensive.
That’s contributed to an even more interesting — or, depending on your perspective, worrisome — thought: a Dish-T-Mobile combo might merely represent step one in a mega-merger involving either a cable operator or an Internet company such as Google or Microsoft.
A third party “could bring cash to the table, possibly a scale customer base and, in the case of cable companies, some backhaul infrastructure that might be helpful in driving higher [profit] margins,” BTIG’s Walter Plecyk says today.
Who’d join the party? John Malone’s Liberty Global could play while Charter Communications — where he’s the largest shareholder — completes its deals to buy Time Warner Cable and Bright House Networks. This week Malone suggested that it’s just a matter of time before a big cable operator challenges Verizon and AT&T in wireless. If he doesn’t, then Luxembourg-based Altice Group’s Patrick Drahi — who recently agreed to buy Suddenlink — is a possibility: He says that he wants to buy other U.S. telecom assets.
And “Google, Comcast, or even Microsoft might make for a more amenable third party to help bring Dish and T-Mobile together if cable allows this opportunity to pass,” Plecyk says.