Dish Discloses Its Intention To Partner With Sprint

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

Dish Network (NASDAQ: DISH) reported its Q4 2012 results with a 33% decline in net income and also threw light on its wireless plan as the company looks to strike the Clearwire (NASDAQ: CLWR) deal. The company Chairman, Charles Ergen, stated that the next strategic move would depend on the regulators decision on the Sprint (NYSE: S) – Softbank deal. However, Ergen finally unravels the actual intention behind pursuing Clearwire in a counterbid, saying that satellite provider envisions to partner with Sprint which would assist it to offer mobile wireless service.

Clearwire has formed a special committee to assess the offers from both Sprint and Dish. The counterbid made by Dish raised doubts regarding the second largest satellite service provider’s intention on how it plans to use its spectrum.

The story unravels
Dish has plans to diversify from its existing pay-TV business which has been experiencing hard time with intensifying competition from other cable companies, internet and telecom providers. The satellite provider recorded a profit of $209.1 million in the last quarter, down 33% from last year’s comparable quarter as cost of acquiring new customers increased. The Colorado-based company’s revenue fell 1.1% to $3.59 billion. It saw a net TV-subscriber addition of 14,000, down 36% from last year and much below the analyst estimate of 48,000.

A part of its diversification strategy, the company has been looking to partner with an existing telecom operator which can help it in achieving its dream to enter the telecom arena and build a 4G network to provide mobile broadband service. So Dish made a counter proposal of $3.30 a share to Clearwire against Sprint’s offer of $2.97 a share. The company’s intension is to acquire Clearwire’s 2.5GHz-band spectrum to complement its own spectrum in 2GHz and 700MHz range and then ultimately partner with Sprint.

‘Sprint and Dish match up pretty well’
Ergen argues that if Dish’s bid is accepted, it would be best for all the three parties. The money losing regional carrier, which is in deep need of capital infusion, would get financial assistance. Sprint would also benefit from the additional fund to construct the required infrastructure and deploy the LTE network. On the other hand, Dish would get into partnership talks with the Kansas carrier to construct its own network, while Sprint could be benefited from Dish’s spectrum which can be best used to offer mobile service. Ergen seems very keen on joining forces with Sprint and says ‘Sprint and Dish match up pretty well with where our spectrum is’.

However, this would be possible only if Dish wins the Clearwire deal. Ergen has made it clear that it would look to partner with another telecom operator rather than speak with Sprint in case it loses the bid. Dish also realizes that it is essential for the satellite provider to partner and collaborate with a matured telecom player who has an existing wireless network. This is necessary as the US telecom sector is an already established industry with fierce competition and if Dish wishes to grab a chunk of wireless market share then it needs to offer good service at a competitive rate.

In case Dish loses the bid and fails to find another telecom partner, what is the alternative for the company?

Plan B
Dish would be in a better position to make a judgment and decide on an alternative course of action by the middle of this year when FCC would pass its final decision on the pending merger deals in the industry. Once the shareholders’ votes come up, it would be easier for Dish to assess the competitive landscape and decide on what is the next best step. Ergen says that if Dish fails to acquire Clearwire, it would try exploring other options to build its wireless business. But if the company still doesn’t get to partner with a suitable wireless operator, it would put its spectrum for sale.

The road ahead
The current year outlook for the company remains uncertain as it depends on whether the satellite provider is able to pair with a wireless company to offer mobile broadband service or decides to put up its spectrum asset for sale. Given Clearwire’s soft corner for its largest wholesale customer Sprint, Dish’s chance to strike the deal remains poor. Amidst all this, where is Dish headed remains a difficult question to answer.

liveinvestor has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus