Not So Fast on Dish/T-Mobile Deal, Analyst Says

Despite the latest spate of press reports that Dish Network is holding merger talks with T-Mobile US, at least one Wall Street analyst doesn't think a pact is very likely.

In his latest research note to clients Friday morning, Craig Moffett, a senior research analyst and principal at MoffettNathanson LLC , rips into the logic behind the proposed pairing of Dish Network LLC (Nasdaq: DISH) and T-Mobile US Inc. He contends that while a merger between the second-largest satellite TV provider and third-largest and fastest-growing wireless provider in the US might look good at first or even second glance, it doesn't hold up under deeper analysis. (See T-Mobile Beats Sprint on Subs, Eyes Verizon on Network.)

Like other financial analysts, Moffett sees "some strategic logic behind a combination of the two companies' spectrum holdings." He notes that both companies have "rich troves of mid-band frequencies that could be very cost-effectively deployed by leveraging T-Mobile's existing network." As a result, Dish could enter the wireless market very efficiently while T-Mobile could offer mobile video with greater capacity than any other wireless player.

But that's where the case for a merger ends, Moffett contends. While a deal with Dish would give T-Mobile lots more mid-band spectrum for network capacity, he says, it would not solve T-Mobile's biggest problem -- a lack of low-band spectrum for signal coverage throughout the US. Thus, T-Mobile would still suffer from the same coverage gaps as before.

Besides, Moffett adds, T-Mobile already has more mid-band capacity on a cell-site-adjusted basis than its three biggest wireless rivals -- AT&T Inc. (NYSE: T), Verizon Wireless and Sprint Corp. (NYSE: S). So it doesn't really need any more mid-band spectrum, which is a big part of what makes it such an appealing merger partner to a number of companies, not just Dish.

Further, Moffett disputes the notion that a combined Dish/T-Mobile could successfully bundle wireless and satellite TV services to subscribers because there's little market demand for that package and no cost efficiencies to be gained. "Nobody is waiting for a bundle of wireless and satellite TV," he wrote. "In any case, since there are no cost synergies to be had in offering them together, a bundle would be nothing more than an excuse to offer a discount. You don't need to do a merger to offer a discount."

Moffett also dismisses the idea that Dish might use T-Mobile's network to offer its new Sling TV OTT service exclusively to the 44.7 million wireless customers that it would gain from the merger. Terming this "a non-starter," he said such a strategy would "starve" Sling TV of subscribers, "keeping it from ever achieving competitive scale for negotiating programming agreements." He argues that Dish will need to keep Sling TV "platform-agnostic to even be competitive with Netflix or Apple TV."

Want to learn about OTT video, multiscreen and other next-gen video technologies? They will be a few of the many topics covered at Light Reading's second Big Telecom Event on June 9-10 in Chicago, which will include a special Video Summit. Sign up today!

Finally, Moffett pooh-poohs a Dish/T-Mobile deal on spectrum valuation grounds. In a complex argument, he makes the case that the two prospective partners' combined mid-band spectrum is really not worth as much as it seems on paper because they would still have to acquire more low-band spectrum to fill T-Mobile's current coverage gaps and raise more cash to do so, among other things.

Despite these daunting hurdles, Moffett concedes that the two companies could still pull a deal out of the hat. But he's definitely not betting on it.

"None of this suggests that a deal is impossible," he writes. "Only that arriving at a mutually agreeable valuation will be challenging. We'll take the under."

— Alan Breznick, Cable/Video Practice Leader, Light Reading

milan03 6/6/2015 | 3:45:53 PM
Moffett's analysis is short sighted It's interesting how short sighted Moffett's analysis is.

While T-Mobile certainly doesn't need Dish's 70+MHz of mid-band spectrum right now, he fialed to aknowledge that Dish's spectrum won't be deployable until at least 2017. It still needs to be codified with 3GPP, and then make it into the equipment and user devices.

So in 2017 T-Mobile will asbolutely need more capacity, and because their existing site density is already optimized for mid-band, Dish's spectrum overlay would fit like a glove.

He also never mentioned the increased purchasing power during the upcoming incentive auction. They'll absolutely go for at least 10MHz FDD LTE of 600MHz spectrum.

By 2017-2018 the NewCo could have the existing 20MHz of FDD LTE in AWS aggregated with Dish's two 20MHz supplemental downlinks in AWS-4, plus 15MHz FDD LTE in AWS-3. Not to mention 5MHz of A block, and PCS H. Couple all that mid-band capacity with 4x4 MIMO, and they could be the first U.S. operator to provide 1+Gbps peak rates by 2018. Fiber backhaul equipment at this point becomes the bottleneck.

Dish's D/E block could be used for LTE Broadcast (eMBMS), leveraging their existing content agreements.
danielcawrey 6/6/2015 | 1:16:23 PM
Glance When I look at this deal, I see two companies that don't have a lot of overlap. T-Mobile is a wireless carrier. Dish is a satellite provider. 

The do have some issues in common, however. One is that they are under pressure from competition, forcing them both to have problems growing. This is the signature reason why I see these two thinking about doing a deal. 
Sign In