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There’s big news today in the wireless industry. On one hand, there’s Verizon Wireless, which is reportedly willing to pay $1.5 billion to lease the wireless spectrum owned by Clearwire.
On the other, is the announcement by Dish that it would pay $25.5 billion to acquire Sprint after it initially attempted to acquire Clearwire. The moves are seen as hugely risky and if one or the other is successful could dramatically change the wireless market.
But what’s perhaps most interesting about the moves is that Sprint stands at the center of the controversy. On one hand, Sprint is the target of a potentially major acquisition. On the other, it’s a majority owner in Clearwire, and Verizon’s reported play is an end-around to acquire more, valuable spectrum without actually getting into the messy business of buying Clearwire or Sprint outright. Simply put, everyone wants to pick at Sprint’s bones.
But why? What makes Sprint such a tempting target? Find out why Dish and Verizon are prepared to spend billions for Sprint’s assets.
1. Wireless Carriers Can’t Get Enough Spectrum
Make no mistake; spectrum is supremely important in the wireless industry. The more spectrum a wireless company has, the faster and bigger it can grow. As a company increases its spectrum, it can increase the size of its network, improve its customer service and become a more powerful competitor in the marketplace. Why wouldn’t Verizon and Dish be battling over spectrum?
2. The future is in a finite amount of spectrum
At the same time, it’s important to keep in mind that there is a finite amount of spectrum available to today’s wireless providers. Mobile companies already have huge portfolios and tons of spectrum. But not all of it is in the right bands or has Federal Communications Commission approval for use in commercial mobile service. Little by little, the government is letting it out into the commercial space. By going after Clearwire and Sprint, it’s a quick way to get a lot of spectrum without having to jump through legal hoops.
3. Sprint is a worthy purchase
Sprint is arguably the most attractive purchase target in the wireless space right now. T-Mobile appears to have no plans to get involved in another acquisition, and Verizon and AT&T are both too big to be purchased. So, that leaves Sprint. And despite all of its problems, it’s relatively weak position in the market and its worry about losing mobile market share to its competitors, it’s providing an opportunity for Dish to break into the wireless market. Dish not only has cash to spend on a big acquisition; it also has its own hefty portfolio of spectrum assets that it doesn’t have much use for without access to an established wireless network – like Sprint’s.
4. Consolidation is necessary
If the last couple of years have taught us anything, it’s that consolidation is inevitable in the wireless marketplace. Companies need to combine forces in order to limit their exposure to heavy subsidies and with international carriers now trying to make inroads into the United States, major providers need to consolidate their power. That’s why Sprint look attractive to many potential suitors.
Dish Network, Verizon Bidding for Pieces of Sprint: 10 Reason Why
5. Clearwire seems like easy pickings
So, why have both Dish and Verizon Wireless gone after Clearwire? It’s simple: the company is an easy way to take control over a large portion of the wireless market. Clearwire owns a boatload of valuable spectrum. Dish tried to make a bid to buy Clearwire back in January. But it didn’t look like this offer would success. So now Dish is going to try to acquire all of Sprint to get access to the Clearwire Spectrum as well as the Sprint network. Verizon, too, sees Clearwire as an easy target because it can lease spectrum at a relatively low price. It’s a win-win.
6. AT&T can’t make a move
Verizon’s desire to play with Clearwire relates directly to the fact that right now, AT&T is licking its wounds. The company last year had hoped to acquire T-Mobile, but couldn’t pull it off after the government stepped in. AT&T doesn’t want to get back into that battle, leaving open an opportunity for Verizon and Dish.
7. T-Mobile won’t make a move
There’s no chance whatsoever that T-Mobile would try to make a move for Clearwire. The company is in the middle of a shareholder revolt with its proposed MetroPCS acquisition and it’s trying to keep itself relevant in a market that doesn’t make it all that easy. With T-Mobile and AT&T out of the way, it only makes sense for Verizon to get in the mix.
8. The value is there
The value in Sprint’s assets cannot be underestimated. Despite its problems, company is a highly respected carrier and it has tens of millions of customers that Dish wants. Meanwhile, Sprint’s 50 percent investment in Clearwire, which some deemed a dumb move, is turning out to be one of the most sought-after aspects of its portfolio. Dish and Verizon are going after Sprint assets for one reason—they’re valuable.
9. It’s the nature of the marketplace
If there’s one thing that anyone should know about the wireless marketplace, it’s that when one company makes a move, all others get nervous and try to do something bigger and better. It happened with T-Mobile; it happened with Clearwire; and now it’s happening with Sprint. The wireless industry is packed with companies in constant fear of being left behind. And the latest Sprint/Clearwire moves show that.
10. Verizon’s move is easier to accept
Verizon isn’t dumb. The company watched as its chief competitor, AT&T, struggled to acquire T-Mobile. Verizon also knows that the U.S. is increasingly scared of consolidation in the marketplace. So, why shouldn’t Verizon try to lease spectrum from Clearwire, and not try to acquire it outright? The decision makes it far more palatable to regulators, and puts Sprint in a tough position. It’s a win-win.