Feature Article

June 04, 2013

Five National Facilities-Based Mobile Providers?

June 13, 2013 is the day shareholders vote on whether or not to accept Sprint’s latest offer to buy the remainder of Clearwire that it does not already own. June 12, 2013 is the day SoftBank and Dish Network bids to buy part of Sprint are scheduled as well.

At least in part, the outcome will shape the structure of the U.S. market. A possible outcome is the emergence of a fifth national, facilities-based mobile services provider.

Another outcome is a major change of control for either T-Mobile USA or Sprint, with the national mobile service provider market remaining fixed at four.

At least momentarily, the turmoil is likely helpful to AT&T and Verizon Wireless, which, one might argue, continue to pull away from Sprint and T-Mobile USA.

Under some circumstances, Softbank pays more than it wanted to acquire both Sprint and effectively Clearwire. Under other circumstances, litigation would tie up the Clearwire acquisition for some time, even if Sprint wins the shareholder vote.

If Sprint somehow loses the shareholder vote and Clearwire is not sold to Sprint but rather to Dish Network, one might predict a period of turmoil, as Dish Network would become an activist minority investor with board seats and clear business objectives different from )and competitive to) Sprint’s interests.

Probably the closest example is Vodafone’s minority holding in Verizon Wireless, though Dish Network’s investment in Clearwire would be more potentially fractious. Vodafone never wanted to create a rival network to Verizon Wireless in the U.S. market.

Dish Network clearly will do so. So Sprint would face a minority shareholder determined to compete against Sprint.

Nor is that key issue the only potential area of friction, though it is the most important. It always is hard to measure the effect of top management personalities on organization strategies and operating practices.

But it would be fair to say that easy coexistence between two strong-willed entrepreneurs (SoftBank’s Maysayoshi Son and Dish Network’s Charlie Ergen) would be problematic, even if organizational visions were completely aligned (and that would not be the case).

Some Clearwire shareholders believe the Dish Network offer is superior, and are fighting the Sprint deal. At a purely financial level, they can argue the point. Others might say the issues are broader than a simple fiduciary duty to shareholders.

Whether Dish Network and SoftBank actually can work together under circumstances where Dish Network will likely become a major rival to Sprint is the issue. Litigation that prevents Sprint from moving ahead rapidly, in the event it wins Clearwire, arguably is not helpful to Sprint.

Verizon Wireless and AT&T continue to pull away from T-Mobile USA and Sprint, while Dish Network prepares to enter the market as well. Few observers are likely to argue that five mobile providers can remain serious contenders in the U.S. market long term, under conditions where it appears four cannot do so.

For Dish Network, the obvious next move, should it fail to acquire a stake in Clearwire and lose the bid to buy Sprint, is to approach T-Mobile USA. A combined Dish Network and T-Mobile USA would leave the overall market at four contenders, arguably would strengthen T-Mobile USA and potentially align the interests of the two former companies without a leadership issue.

Some observers would argue that, ultimately, Dish Network is a seller of assets, not a long term operator. In that sense, Dish Network maximizes the value of its spectrum assets by wrapping them into an on-going service company (in fact, Dish Network must do so or it loses the right to use its spectrum), even if ultimately it is a seller of all those assets to a future buyer.

For Dish, winning Sprint, Clearwire, part of Clearwire’s spectrum or simply a partnership of some sort with Sprint, could all be considered upside.

Edited by Rich Steeves

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