DISH Network, Sprint, and the Three Fish Scenario


Anyone surprised by DISH Network’s bid to acquire Sprint Communications is probably wearing cable-colored glasses. Many cable industry observers look at competitors through the filter of who is offering pay TV or triple-play (TV, broadband access and voice) services, and don’t seem so worried about quad-play competition (adding wireless) because most of the major ones partner with the enemy (Verizon) for that.

Public companies in the US are required by the SEC to file quarterly and annual reports that include management narratives about the health of the company and company risk factors, and that’s a good place to read the tea leaves because at least the tea leaves have some basis in reality. It’s no surprise that the reports of Comcast, Time Warner Cable, and all of the others identify satellite as a competitive risk in the pay TV category.

Beyond video, Time Warner Cable and others make general reference to the competitive threat posed by satellite TV operators providing voice and data services through partnerships with telephone companies (and symbiotically, so Telcos can also add TV services to their range of services or reach un-served territories without having to build their own TV infrastructure).

Some of these filings also make general reference to competition from satellite-delivered broadband. DirecTV’s makes specific reference to DISHNet satellite Internet service. Similarly, most MVPDs* recognize facilities-based video from Telcos (IPTV) as a threat. Most MVPDs also recognize video distribution to consumer devices over broadband both as threats (inflicted by others) and as opportunities (for themselves).

But NONE of the 2012 year-end SEC filings by any of the major MVPDs explicitly identify DISH Network or EchoStar as a 4G wireless threat.

DirecTV is the only one that recognizes any specific video-over-wireless threat by identifying AT&T U-verse Mobile, Verizon FiOS TV’s Flex View and Verizon Wireless Viewdini services. And of course AT&T and Verizon are increasingly open about their plans to deliver all of their services over IP, including video (Yes, LTE is IP-based, and no, neither AT&T nor Verizon identify DISH as a 4G competitor in their SEC filings either).

Other than that, it just doesn’t appear on their radar screens.

Meanwhile, DISH’s quad-play plans have been brewing for years

An intriguing series of events over the past several years makes it clear that DISH has ambitious quad-play plans. It’s really no secret: these events have been hidden in plain view.
Let’s review.

  • In 2009, DISH Network was granted licenses by the FCC, to operate services over the 700Mhz band. The spectrum can be used for mobile broadcast TV, or to tie in with LTE Advanced service.
  • In 2011, EchoStar acquired Hughes Communications for about $2 billion, including debt,
  • In 2012, EchoStar acquired DBSD North America and TerreStar Networks for a total of about $2.9 billion. This gave DISH new S-band spectrum that could be used by DISH to launch wireless broadband Internet access and voice services over LTE-Advanced network technology. DISH proposed a hybrid satellite-terrestrial mobile broadband network to the FCC, which the FCC first denied and later approved.
  • DISH’s 2012 annual report states clearly that all of these acquisitions could require “significant” further capital investment before they can be commercialized.

And now, along comes Sprint

In a situation that conjures up mental images of the classic three fish scenario:

  • In October 2012, Japan’s SoftBank made a bid to acquire 70% of Sprint for about $20 billion, ostensibly to establish a foothold in North America. Softbank seems to want Sprint only with Clearwire.
  • In December 2012, Sprint announced a $2.2 billion agreement to acquire the remaining 49 percent of Clearwire that it doesn’t already own. Sprint indicated that Clearwire’s other voting stakeholders (Intel, Comcast and Bright House Networks) had approved. Regulatory approval remains pending here in April.
  • In December 2012, DISH requested that regulatory approval of Sprint’s Clearwire acquisition be delayed.
  • In January, DISH made its own bid to purchase Clearwire for about $2.3 billion. Some observers believe that DISH’s Clearwire bid was also aimed at dissuading Softbank from buying Sprint
    In mid-April 2013, DISH confirmed its intentions to buy Sprint, confirming rumors had been circulating for at least a year
  • Perhaps feeling threatened by DISH, Verizon seems to want in on Clearwire as well

During 2013, Sprint is in the process of rolling out its 4G LTE network nationally. In addition, DISH seems comfortable that Clearwire would be under DISH’s control, regardless of whether or not Sprint’s acquisition of Clearwire goes through; assuming DISH’s acquisition of Sprint does happen.

The end result of all this acquisition activity for DISH would be a virtually unparalleled range of spectrum, from which they can build broadband video services over wireless. In fact, DISH CEO Charlie Ergen said so this week.

But that’s not all

In further support of the hypothesis that DISH is actually interested in building a quad-play service platform and not just collecting licenses, it should be remembered that DISH has also made other types of network acquisitions.

In 2011, DISH acquired, which owns FCC licenses for Multichannel Video and Data Distribution Service (MVDDS) broadband wireless spectrum. This could conceivably enable DISH to deliver multichannel TV and/or broadband multicast services over line-of-sight over-the-air terrestrial broadcast, in territories where incumbent providers can’t. To be fair, I have spoken with observers who think just the opposite: that DISH is holding these licenses with no intention to build.

Also in 2011, DISH acquired Liberty Bell Telecom. Liberty Bell is licensed to operate in 13 western states and could conceivably become a platform for DISH to offer wireline broadband and triple-play services in that region.

With all of these factors taken into consideration, there seems to be little question of DISH’s long range intentions: that DISH wants to leapfrog the cable triple-play and become a quad play operator. In fact, DISH itself has reported on all of these acquisitions in its SEC filings, so the writing has been on the wall.

What could possibly happen?

An acquisition of Sprint by DISH would instantly make DISH a 4G wireless competitor with a national footprint, giving it a major competitive advantage over DirecTV, and over cable TV (although as noted earlier, Comcast, Time Warner Cable, Cox Communications, and Bright House Networks now partner with Verizon Wireless).

A Sprint acquisition also would place DISH in more or less a peer position against AT&T and Verizon, in terms of the range of available services, since DISH would be able to offer a quad-play of pay TV, data, voice and mobile services, and all three operators of these operators would have national wireless footprints.

But even if DISH’s aggressive bid for Sprint (and/or Clearwire) were to fail, it seems likely that DISH will introduce wireless services anyway, sometime in the foreseeable future, since the FCC did approve DISH Network’s request to use its wireless spectrum for an LTE wireless service. But Sprint would give DISH a faster path to market.

Three fish and a game of chicken

I think the three fish scenario, in which DISH acquires Sprint which acquires (or at least controls) Clearwire, would be good for DISH and good for competition. By many reports, DISH actually wants to build a service, whereas Softbank is mainly interested in Sprint as an investment and to give Softbank a US roaming partner.

DISH may also be motivated by a factor other than competition: it must have completed 35% of its deployment over its 700Mhz spectrum by June 2013. Could the acquisition of Sprint be a catalyst that helps DISH fulfill that requirement as well? June looms large. If that speculation is correct, DISH CEO Charlie Ergen is playing a heck of a game of chicken. DISH has asked the FCC for special considerations in the past and could conceivably ask for another to extend this deadline.

One more thing, in case you were wondering

MVPD is the acronym for the term Multichannel Video Programming Distributors, defined by the Telecommunications Act of 1996 for pay TV operators. MVPDs include cable and satellite TV operators and Telcos that offer TV services.

The FCC’s Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Fourteenth Report, released July 20, 2012, reviewed the period between 2007 and 2010. It is very educational and highly recommended. OTT providers, by the way, are classified by the FCC as “OVDs” (Online Video Distributors), a new category that was established in 2010, separate and distinct from the MVPD category.

All of the cable, telco and satellite operators have been responding to the threat of OTT video for several years now. Time Warner Cable’s 2012 annual report goes a step further and cites the threat of OTT voice.


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