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The future of T-Mobile has been up in the air for a few years now. First AT&T tried to buy the company in early 2011 only to have its bid blocked by the U.S. Department of Justice and the Federal Communications Commission.
Then, earlier this month, rumors started circulating that Sprint was gearing up to buy T-Mobile, the nation’s fourth-largest wireless carrier. Now the rumor emerges again, this time fueled by stories in Reuters and Investor’s Business Daily that Dish Network is thinking of buying T-Mobile.
I mentioned the possibility that Dish would set its sights on buying T-Mobile in July 2013 and now may be approaching reality. The reasons are fairly straightforward. Dish Network and its chairman, Charlie Ergen, have made no secret of the fact that the company wants a wireless carrier and it’s got plenty of spectrum to bring to the party. Dish has already tried tenaciously to buy Sprint, but failed. T-Mobile is the only U.S. company left that Dish can buy to turn itself into a wireless carrier.
Dish has some significant advantages over Sprint. First, Sprint’s chances of getting regulatory approval to buy T-Mobile are slim. Both the DoJ and the FCC have made it clear they don’t look favorably on reducing the number of national wireless carriers from four to three.
But even if the companies were to get approval, there’s the immense cost of merging two companies with different wireless technologies. T-Mobile is already going through this, but it’s doing it with MetroPCS, a much smaller regional carrier.
So what would a T-Mobile-Dish merger look like? Right now, Dish doesn’t have a wireless phone network, but it does have plenty of unused spectrum, part of which is in the highly desirable 700 MHz band and part of which is in the L and S band originally designated for satellite phones. But in early December, Dish received permission from the FCC to repurpose those bands for cellphone use as long as those uses didn’t interfere with other services, notably GPS.
While the microwave frequencies used by satellite phones aren’t as useful for mobile phone use as is the 700 megahertz band, it’s still useful spectrum. Perhaps equally important, T-Mobile already operates in nearby radio bands. This means that if Dish were to buy T-Mobile, the company could gain the use of significant resources that it already owns.
What this boils down to is T-Mobile would gain spectrum it needs, and Dish would gain the wireless carrier it wants.
Dish Network Has Better Prospects Than Sprint to Buy T-Mobile
But how will it happen? Dish has the choice of simply buying T-Mobile, assuming that majority owner Deutsche Telekom decides to sell, or of acquiring T-Mobile in a highly leveraged buyout. The problem with a leveraged buyout is that it would leave T-Mobile with vast amounts of debt which could hinder its current level of aggressive growth.
And then there’s the problem of blending T-Mobile’s culture with that of Dish. Charlie Ergen is a gambler. He’s a larger-than-life figure that dominates the space he’s in. T-Mobile CEO John Legere is also a forceful executive who has been the motivation behind T-Mobile’s “uncarrier” approach to wireless marketing and in the process is transforming the wireless industry. Could Legere and Ergen work together?
Meanwhile, there’s Sprint. Dish and Sprint have become something of an item now that the companies are working together on an LTE fixed wireless service that would bring broadband to customers in their homes and offices. Current plans for that service call for a launch in Corpus Christi, Texas, in 2014. Sprint and Dish are also cooperating on a spectrum auction planned for 2015 with Sprint bowing out of the auction to let Dish buy the spectrum.
Where all of this will end is unclear. Now that T-Mobile has turned the corner and is growing faster than any other U.S. wireless carrier, there’s every incentive for DT to hang on to its U.S. subsidiary and let it grow. On the other hand, T-Mobile’s success lately means that it’s worth a lot more than it was when Sprint first started thinking about buying it.
But T-Mobile’s success also means that it would cost Dish more money than it might have a year or two earlier. Can Dish afford to buy T-Mobile without a highly leveraged buyout and lots of debt? That seems less likely as T-Mobile’s success continues to grow. But is there a third option? Could Dish buy part of T-Mobile and operate it with DT as a joint venture, sort of like what Verizon and Vodafone did when they started Verizon Wireless?
There’s a lot to be said for T-Mobile as a joint venture. It could help DT deal with its promise to maintain control of T-Mobile for another year, which happened when it bought MetroPCS, and it could help Dish ease into being a wireless carrier while also giving T-Mobile access to all that Dish spectrum. Of course, such a move would leave Sprint out of the picture, but Sprint was never really in the picture, anyway.