ANALYSIS: Sprint sold on spectrum?
30 April 2013 |
Arguably, if Sprint was to opt for domestic consolidation and take up Dish Network's $25.5 billion bid, it would have chosen a route that gives it no end of available wireless spectrum.
The question now lies in what Dish will do with this spectrum, if indeed it does grab Sprint and consequently spectrum-rich Clearwire as a result.
Richard Karpinski, senior analyst at Yankee Group opens up the idea of the combined company establishing a wholesale model and use it to re-sell spectrum to smaller operators. “It is possible that Sprint will leverage the spectrum for their mobile and fixed business, and become a lot more dynamic in the wholesale market.”
Dish entered the bidding late, and offered $5.5 billion more than Softbank offered, just last month. Softbank was under the assumption it had tied up a deal to acquire a 70% stake in the company at the end of last year.
Charles Ergen, chairman of the satellite provider, and a known Blackjack cards player, showed his hand late in the battle for Sprint. But he has made no secret of his intentions to link up his satellite TV offering with a mobile wireless play, and has gone all out in acquiring available spectrum with the view to launch a bundled package.
“Dish has been talking about its mobile stategy for many years, yet the company has not been particularly clear or successful in executing these aspirations,” said Sara Kaufman, senior analyst at Ovum.
To beef up Sprint’s domestic operation, Dish’s proposal seems like a viable option. For one thing, its market share would grow significantly, and provide existing customers with more options. Sprint would also be in a very good position to combine broadband, TV, mobile and voice services, and to wholesale much sought after spectrum to smaller rivaling players. The two bids, in effect, provide Sprint with twodifferent sets of factors to consider. Analysts in the US have commented on the fact that Dish is indeed a US company, and in-country consolidation would be a preferable outcome overall.
Also, the fact that Sprint could viably offer triple play services through Dish, a strategy that has been successfully undertaken by rivals AT&T and Verizon could prove an additional pulling point for the company’s decision makers.
“Sprint is caught in the middle of two markets,” said Karpinski. “In effect, the two bids offer Sprint the chance to develop two different business models. With Softbank, they get access to a pure play model, increase their market share on mobile level, while gaining
access to capital injection.”
Karpinski noted that Dish has a plethora of spectrum to exploit, and is intent on doing so, one way or another. “It would really put Sprint back in the game in terms of its fight against the larger players, and provide an additional way to add market share across the entire US telecoms ecosystem.”
The problem, according to Kaufman, lies in where Dish would sit on a mobile play, where Sprint has built the core foundation of its business. “Dish has no experience or expertise in managing mobile sales channels, crafting effective go-to-market strategies or pricing, or managing all of the operational complexities and challenges associated with being a mobile operator,” she said.
Market watchers, on the whole, have held a consistant view regarding Softbank’s bid to acquire a majority stake in Sprint. When first announced, the idea that Softbank was to enter the US market and make Sprint a lot more competitive was met with a relative amount of cautious optimism. Dish’s bid, since, has brought up a whole range of questions, including how much debt the merged companies will carry, and the fact that the satellite operator has not yet pledged a figure for capital investment, unlike rivaling Softbank. “Softbank will bring cash, expertise, and spectrum alignment to Sprint,” said Kaufman. “It has a like minded corporate strategy and culture of being the market disruptor in its home market. All of these factors align well with Sprint and its needs.” Karpinski added, that while both Dish and Softbank differ on a range of levels, both companies are intent on shaking up the market. “This is a good thing for Sprint,” he says. “They are both disruptive because they want to enter new markets, and considering who Sprint are competing against, either acquisition could work in the long run.”
On the outside looking in, two companies fighting over Sprint could be deemed as a positive for the US provider. However, the Dish bid serves to prolong the process, and could cause substantial damage to the operator in the long term. The fact that the company has revamped its wholesale model in recent months, in addition to undergoing a transformational project to rollout LTE means it needs access to large amounts of capital. In such a critical period for the company, market watchers believe it will struggle to make critical decisions about its overall strategic direction.
“Stability, certainty and speed may be more valuable than cash in hand,” concluded Ovum’s Kaufman.