The Latest Bid by DISH to Entice Sprint-Softbank Into a Deal
Charlie Ergen's latest attempt to break into the mobile broadband space through acquisition has shifted focus back again to Clearwire as efforts to court Sprint away from Softbank appears beyond DISH's grasp. The past attempt to acquire Clearwire, a bid at $3.40, while 'superior' in dollar terms, fell far short in financial structure, time-to-market impacts, regulatory concerns, and product and technology synergies that have made it a less desirable alternative. From the typical perspective of merger and acquisition analysis financial analysis, the first offer had, on its face, a value higher than Sprint's $2.90 acquisition price. However, neither the earlier offer or the increased bit at $4.40 comes close to compensating Sprint for their long sought after position as the developer of the 2.5-2.6GHz broadband extension band spectrum or leadership position in mobile marketshare.
A basic question needs to be asked: "What is DISH's Ergen trying to acquire in order to build a successful new business model?" Charlie has repeatedly answered that question himself, saying DISH needs a network and mobile device partner as well as a well placed mix of spectrum. DISH needs to graft on mobile marketshare or find ways to build up to it cost effectively or the business model will face a similar fate as Clearwire - drowning in the sea of competition for combined mobile and broadband services.
Come Closer, I'll Throw Your Boat a Lifeline! Source: Maravedis Group 2013
Background: What DISH Has to Gain and the Challenges They Face
DISH Networks has been striving over the past three years to forge a partnership or acquire their way into mobile networks, devices and marketshare. The mobile business is a catch-22 between capital-intensive network and device market development and marketshare that can be leveraged to fill up the new networks will the needed tens of millions of subscribers to make a nationwide operation profitable. The mechanics of this works out to the buzzwords of volume efficiencies and market leverage that, in turn break down further into analysis of the SmartPhone, tablet and Phablet devices and markets. Critical to any business model analysis is the rapid pace of turnover in wireless radio access network infrastructure, WRAN, and the device markets and ecosystems. If this could have once been characterized as a rapidly spinning hamster wheel that forces successive and larger scale of reinvestment in order to stay competitive, its now evolved to massive scales of multiple service network-device-services-content empires that increasingly embraces the worlds of IT/networking and IPTV TV as well as the Internet and mobile realms.
DISH has to parlay a profitable but relatively small 14 million satellite TV subscriber business into the ~290 million subscriber mobile market shark filled competitive waters. In theory, the combination of digital TV and mobile broadband has long made sense. The markets are convergence already and as the new networks capable of delivering HD content increase, a clash for control of the combined market is inevitable. DISH lacks the deployed network, devices, and marketshare to join the race at a competitive level.
In a Nutshell, DISH needs: An additional 40MHz of broadband Spectrum. Large scale mobile network deployment capability. Mainstream mobile-roaming devices. Grafting on or ability to rapidly grow marketshare against the odds. Jumping through the time-to-market window of opportunity before the satellite market succombs to competitive pressures and shorter life-cycles of deployed networks.
Ramifications of the New DISH Offer:
DISH acquires Clearwire. This looks unlikely since it remains at odds with Sprint, the 51%+ majority owner. Ergen has structured the new offer to serve as a starting point in negotiations for a broader merger of interests between DISH, Sprint, Clearwire and Softbank.
- DISH's offer expresses willingness to participate in ownership of Clearwire and networks as a minority partner. If degree of control issues can be overcome, a deal that goes beyond control of the spectrum assets and current network operation is doable.
- New possibilities for the parties to forge a profitable and less conflicting business arrangement. Difficulties remain centered on New DISH and New Sprint becoming competitors aimed at developing a seamless TV-Broadband-Mobile business that stresses video and high wireless broadband speeds to combat the 65% marketshare dominance of Verizon and AT&T.
- The parties have common needs and goals that can drive them together to go after the larger common overall market they hope to develop.
- This scenario can be likened to the PC era rift between Steve Jobs and Bill Gates that resulted in the parties burying their hatchets in order to develop common markets. Areas of conflict were greatly overtaken by the broader growth and overall improvement in each of their company's competitive positions.