The $25.5 billion bid for Sprint, tabled by US satellite TV network Dish, was a surprise when it emerged earlier this week.
The offer trumped the $20 billion bid by Japanese group Softbank in October last year, both in terms of price and the stake Sprint shareholders would hold.
Dish has been linked recently with various other mobile deals, most notably a counterbid to Sprint’s efforts to acquire wholesale network operator Clearwire.
It was also rumoured to be eyeing MetroPCS before T-Mobile agreed terms to buy the tier-two operator, and just this week was reported as having an interest in buying T-Mobile USA from Deutsche Telekom.
But a potential merger with Sprint — the third-largest operator in the US — is significantly more ambitious than the other deals Dish has been interested in.
A tasty Dish
In the press conference to discuss the Sprint bid, Dish chairman Charlie Ergen and the company’s head of corporate development, Tom Cullen, made a pretty convincing argument as to why a Dish-Sprint union could work.
The intention is to create a combined offering of satellite TV, mobile video, data and voice. That’s something that no other company in the US currently does on a nationwide basis.
And Dish has plenty of wireless frequencies that it can bring to the party, including a block of 700MHz frequencies. Ergen estimated that all of Dish’s spectrum assets would be worth in the region of $8 billion to $10 billion on the open market.
And in addition to Sprint’s own allocations, the successful completion of the Clearwire deal would add another 132MHz chunk of spectrum, which Dish said could provide overflow capacity in urban areas.
If Dish, Sprint and Clearwire come together, the combined company would have 230MHz of spectrum, which is more than double AT&T (106MHz) and Verizon Wireless (107MHz).
Dish would also bring subscribers into the combined company through its existing satellite TV and broadband businesses, with some overlap with Sprint’s customer base already in existence.
The combined company would therefore deliver “substantial synergies and growth opportunities” worth an estimated $37 billion in net present value, including cost savings in the region of $11 billion, Dish said.
You can see why Ergen likened his company’s strategy to a Seinfeld episode in that “there are a lot of things that happen in the first 28 minutes but it seemed to all come together in the last couple of minutes”.
Down, but not out
However, this isn’t to say that Dish is now the frontrunner to complete a merger with Sprint. Its decision not to withdraw its bid for Clearwire shows it doesn’t necessarily believe a merger with Sprint is a certainty.
Softbank’s bid for Sprint was accepted back in October and has been undergoing regulatory scrutiny since.
Dish argues that the fact Softbank is not based in the US could complicate the approval process with the Department of Justice, but given the time the offer has been on the table, such issues are likely to have been largely ironed out. Indeed, Softbank itself has said it is in “the advanced stages of receiving the necessary approvals”.
The Japanese group has stated that its offer for Sprint has “superior short and long term benefits” for shareholders compared to the “highly conditional preliminary proposal” from Dish. As a result, Softbank believes it is on course to complete the deal in July.
A factor in Softbank’s favour is that it’s in the mobile operator business and so possesses expertise that Dish does not. Sprint has been struggling in recent times, losing subscribers and reporting financial losses, and so could benefit from a tie-up with a company with a proven track record in turning operators around.
Softbank’s takeover of Vodafone Japan in 2006 saw it take on a business which was rapidly losing market share. But the renamed Softbank Mobile returned to health three years later after fierce discounting and striking a deal to be the first Japanese operator to offer the iPhone.
In addition, Softbank CEO Masayoshi Son revealed that Softbank Mobile was the first operator in the world to generate more than half of its ARPU from data. This ARPU has also been stable in recent years, going against the trend in Japan and elsewhere in the world.
Sprint is ripe for the kind of turnaround Softbank has managed before – although it should be noted that the US is a different market with different dynamics, so success is far from guaranteed.
Whether it becomes a Japanese-controlled operator to take on market leaders Verizon Wireless and AT&T, or part of a multi-play communications provider, the future of Sprint is likely to be an interesting one.
The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members.