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."

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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

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