(Bloomberg) -- It’s fitting that Dish Network Corp. Chairman Charlie Ergen is set to speak to Wall Street just as the wireless industry’s merger moratorium is lifted. His company’s massive stockpile of airwaves figures heavily in the speculation over who will buy whom.
Dish reports earnings Monday, just days after the end of a government-imposed quiet period related to a federal sale of wireless spectrum. In that auction and other deals over the past decade, Ergen’s satellite-TV company compiled $34.7 billion worth of nation-blanketing airwaves. Ergen kept buying spectrum even after an effort to merge with Sprint Corp. fizzled a few years ago, and investors have been trying to figure out his endgame ever since.
Now, with a merger-friendly Republican administration in place, Ergen has a chance to finally do something with all those assets -- if the notoriously prickly billionaire can find a willing partner, perhaps in T-Mobile US Inc., Verizon Communications Inc. or Comcast Corp. The challenge for Ergen, 64, is to convince a would-be suitor that Dish hasn’t become too unwieldy of an acquisition target with all that spectrum, including $6.2 billion worth in this year’s auction.
“You have to wonder if Dish’s spectrum acquisitions have helped or hindered Charlie’s options,” said Amy Yong, an analyst with Macquarie Capital USA Inc.
The government-imposed quiet period expired Thursday at 6 p.m., and companies were immediately expected to start reaching out to each other about potential deals. Among Dish’s more compelling M&A targets is T-Mobile, the fastest-growing U.S. wireless carrier. Ergen said he was impressed with the way T-Mobile was revitalized under John Legere, its chief executive officer. Preliminary deal talks between Dish and T-Mobile parent Deutsche Telekom AG stalled two years ago when the two sides couldn’t agree on terms.
Sprint and T-Mobile have been viewed as the most likely to merge because together, they could cut costs and build a stronger competitor to market leaders AT&T Inc. and Verizon. If Sprint and T-Mobile get together, Englewood, Colorado-based Dish loses two potential partners, and Ergen’s job gets tougher.
Sprint’s owner, SoftBank Group Corp., is looking for ways to better reflect the value of its own trove of airwave licenses, even entertaining the notion of spinning off some spectrum into a separate, publicly traded company, Bloomberg reported earlier this week, citing people familiar with the matter. A deal with T-Mobile or another party would have to properly compensate Sprint for its airwaves, the people said. SoftBank Chairman Masayoshi Son has to be careful, though, not to send T-Mobile into the arms of another suitor like Dish, said Walt Piecyk, an analyst with BTIG LLC.
“Now, with the quiet period lifted, every hour that passes without a deal is an an indication that Masa has not been able to come up with a offer that is attractive to Deutsche Telekom,” Piecyk said.
Swinging For The Fences
If Sprint and T-Mobile are out of the picture, Ergen could turn to Verizon, which has been part of a will-they/won’t-they saga with Dish for ages. Chief Executive Officer Lowell McAdam has said in the past that he was interested in Dish’s airwaves but not its satellite TV business. And AT&T’s purchase of Dish’s biggest satellite rival, DirecTV, in 2015 made a Verizon bid for Dish seem more plausible.
But there are reasons to think Verizon might not be so into Dish. The company offered $1.8 billion this week for Straight Path Communications Inc., an owner of spectrum in a higher frequency band than Dish holds, suggesting Verizon is looking for a different type of airwave than Dish can offer.
Dish holds 93.6 megahertz of spectrum on average nationwide, making the company the fifth-largest holder of broadband airwaves in the U.S. Some of that spectrum is in lower
frequency bands, such as 600 megahertz, that may not appeal as much to buyers since they have less capacity, according to Bloomberg Intelligence. Most of Dish’s spectrum is in the AWS band, a higher frequency, but still lower than the capacity of the airwaves Straight Path owns.
And Verizon, which bought AOL Inc. in 2015 and is acquiring Yahoo! Inc., has been signaling it’s interested in transactions that would move the company further beyond its telecom roots. The arrival of pro-business President Donald Trump and his appointment of more lenient regulators, along with a stunning slowdown in wireless service growth and conventional pay-TV businesses, has converged in a way that has some executives conjuring transformative megadeals.
AT&T Inc.’s $85.4 billion deal for Time Warner Inc. has “made people reevaluate their portfolio,” McAdam said in an interview last week. He is open to talks with CEOs at companies like Comcast, Walt Disney Co. and CBS Corp., he said. Those types of deals could bring quicker improvements to the business than Dish could, by adding the fiber networks that underpin cable companies, or a big stake in content ownership through media acquisitions.
That leaves cable providers like Comcast Corp. or Charter Communications Inc. that are now dabbling in wireless service by reselling capacity acquired from Verizon to their TV subscribers. If the cable companies get more serious about owning wireless networks, Dish would have spectrum to offer up. But an outright sale of the entire company, including the satellite business, to a cable competitor would be a tough antitrust hurdle.
While Ergen has yet to fulfill his dream of creating a super-fast wireless network to deliver video to any device, Dish hasn’t been idle. Sling TV was introduced two years ago as the first skinny-bundle online TV service. Viewers can get more than 20 live channels, including ESPN and TNT, starting at $20 a month, with the option to add channels and record videos for additional costs.
Where some have seen Dish getting boxed into a corner strategically, Ergen has always said the options were numerous. “Acquiring a company, selling our company, merging, partnering -- those are all on the table,” Ergen said on a 2014 earnings call. He’s likely to echo that message on Monday, Yong said.
“I think we will hear some of the usual narrative from Charlie,” she said. “It’s all about ‘optionality.’”