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DISH Considers T-Mobile US Takeover

Zacks Equity Research

Recently, DISH Network Corp. (DISH), the second largest satellite TV operator in the U.S., stated that its intention of pursuing T-Mobile US Inc. (TMUS) only if  Sprint Corp. (S) decides not to proceed with the takeover. We believe that a merger between DISH and T-Mobile US has greater potential to clear regulatory hurdles than it would between Sprint and T-Mobile US.

T-Mobile is the fourth largest telecom operator in the U.S. while Sprint is the nation’s third largest telecom operator. In 2011, the Federal Communications Commission (:FCC) thwarted AT&T Inc.’s (T) attempt to acquire T-Mobile US, stating that it wants four nationwide telecom operators to maintain competitiveness.

If DISH acquires T-Mobile US, the number of telecom operators in the U.S. will remain at four while the figure will come down to three if Sprint executes the deal.

DISH has constructed an extensive wireless/satellite spectrum base over the last seven years. The company’s current spectrum holding is 56 MHzs for which it has invested around $5 billion since 2007. In 2012, the company purchased 2 slots of the 40 MHz S-band wireless spectrum fromthe bankrupt TerreStar Networks Inc. and DBSD North America Inc. for a consideration of $2.9 billion.

Moreover, DISH owns a slot of 700 MHz airwaves. In Mar 2014, the company won the bid for PCS H Block wireless frequencies auctioned by the FCC. The frequencies can be used in all 176 markets in the U.S.  DISH has spent $1.56 billion for these wireless frequencies.

Although DISH received the FCC approval to deploy a nationwide wireless network, it came with a restrictive condition. The constraint specifies that the wireless network deployment can be executed using a truncated power level. The regulator claimed that a reduction in DISH’s frequency level is required to avoid interference with an adjacent PCS H Block frequency which it recently auctioned.

The acquisition of PCS H Block radio spectrums will significantly raise DISH’s power and emission levels to establish a profitable venture in the wireless market.

We believe DISH’s attempt to enter the wireless market is a diversification strategy to counter pay-TV market saturation. The company enjoys the opportunity to collaborate with established telecom or tech companies to jointly establish a wireless network or monetize its spectrum holding for considerable profits. In 2013, DISH lost to Softbank of Japan in its attempt to acquire Sprint. DISH currently has a Zacks Rank #3 (Hold).

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