Sprint Edges Closer to the Softbank Deal As FCC Rejects Dish’s Wish

Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The satellite provider Dish Network (NASDAQ: DISH) had asked the FCC to delay the evaluation of the Sprint (NYSE: S) and Softbank deal. This would prevent Sprint from acquiring the rest of Clearwire (NASDAQ: CLWR) and enable Dish to easily get its hands on the spectrum-rich carrier and make an entry in the wireless industry. However the regulator turned down the request of Dish, which means that the Sprint-Softbank merger review process would continue as scheduled. Once the consolidation proposal is closely investigated by the US Department of Justice (DOJ), Department of Homeland Security (DHS) and the Federal Bureau of Investigation (FBI) and they are satisfied after assessing issues related to national security and public safety, the FCC would begin its review.

The FCC’s assessment process would also include evaluation of the Clearwire acquisition proposal that the Kansas carrier made. Both the deals are critical for Sprint’s survival in the highly competitive telecom space.

Softbank deal a must for Sprint’s survival
While the Clearwire deal will help Sprint enhance its spectrum holding, the Softbank deal will give the third largest carrier the required cash infusion to efficiently continue the network upgrading program and conclude the Clearwire acquisition deal. This deal is extremely crucial for the national telecom player particularly after the poor fourth quarter results. Sprint’s market share in the postpaid segment fell, which isn’t good sign if the wireless provider seriously wishes to contend bigger players AT&T and Verizon.

In addition, the Nextel shutdown is also making the carrier lose far more customers than add. Furthermore, the company has a debt loaded balance sheet of $24 billion long term debt. This makes capital infusion a must as it needs solid cash to fund its mounting capital expenditure with regards to the Network Vision. Softbank’s big pockets will provide Sprint with the much need financial backing to grow in the wireless telecom market. Once the Softbank deal is set, the next step would be to gain complete control of Clearwire.

Clearwire caught in confusion
The Bellevue telecom provider got a $2.97 a share proposal from Sprint last December. This was shortly followed by a $3.30 a share counterbid from Dish, which has been trying to make its way in the telecom industry. On the face, Dish’s higher proposal looks more meaningful for Clearwire. A number of investors have also recommended Clearwire to consider Dish’s proposal or else ask Sprint to revise and raise its bid.

However, Clearwire seems to have a soft spot for its biggest wholesale customer. The carrier claims that it would have to undergo a restructure program in case it rejects Sprint’s offer. This suggests that the regional carrier isn’t actually considering Dish’s proposal, though it said that it would review both the proposals while deciding which offer to accept. Dish’s chances to win the deal are distant, though Sprint might have to increase its final offer to appease institutional investors and gain 75% of Clearwire’s shareholders support, which is required for the deal.

So what would happen to Dish’s dream after Sprint takes over the spectrum king?

Plan B for Dish
The satellite service provider wants to utilize its 40MHz of AWS spectrum to build a wireless spectrum to compete in the telecom sector. For this, the company has been looking to partner with a wireless company which would assist it to create the required network and offer wireless services. It would be sensible for the company to collaborate with an already established player. This is exactly why the company made a higher offer to Clearwire. Many analysts believe that Dish’s offer to Clearwire is a tool to get in partnership talks with Sprint.

However, Dish’s Chairman Charlie Ergen says that things aren’t proceeding the way it had been planned as the FCC delayed its approval. If the company is unable to find a suitable partner, it would just put its spectrum on sale. It is more than certain that Sprint, which already owns over half the company, would win the Clearwire deal leaving Dish without a partner.

The bottom-line
2013 is going to be quite an eventful year for Sprint. The company will continue losing subscribers due to its Nextel shutdown. In addition, huge capital expenditure for building the 4G LTE would also stress cash flow. However, both the Softbank and Clearwire transactions are going to give the carrier the required muscle to compete with the virtual duopoly of Verizon and AT&T in the long run.


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