DISH's Options in the Telecom Arena Are Thinning
When telecom behemoth AT&T decided to make a bid for Leap Wireless, the takeaway was less about the $1.2 billion buyout, and more about what it meant for two competitors -- satellite TV company DISH Network and T-Mobile . Working tirelessly to find a partner to launch its broadband network, DISH was thought to potentially turn its eye on Leap, after acquisition efforts for both Sprint and spectrum-laden Clearwire failed. As the final chapter approaches in this M&A mad dash, it may be a matter of who's left -- which in this case is T-Mobile. Will the two companies be joining forces?
The smart money says yes
The pressure is on for DISH to find a spectrum suitor. When the company gained FCC approval for its wireless network, it was told it needed to cover at least 70% of it within seven years -- a mighty task for the company to undertake all by its lonesome. The much more natural option would be to buy that capability, hence all of the recent offers.
T-Mobile, on the other hand, is not in such a position. The wireless company's reverse merger with Metro PCS took care of its near-term desires for market share and spectrum. Still, both companies could benefit from the merger.
Unsurprisingly, there is a round of consolidation ongoing among telecom and media companies. To stay competitive, as well as achieve the necessary economies of scale, it behooves not just DISH, but T-Mobile as well, to search for partners. With AT&T's latest acquisition, and a purchase of spectrum from Verizon earlier in the year, the company has two major deals in front of the FCC, and will control a substantial amount of the airwaves.
Famed hedge fund manager John Paulson believes the two will indeed join forces. Paulson's fund is the largest outside shareholder of T-Mobile, and originally bought the 2.3% stake in the company in anticipation of its merger with MetroPCS. Yet now that the deal has closed, the fund still holds its position, expecting further consolidation -- likely with DISH.
DISH investors need to keep a very close eye on this situation. The company's core operations are performing fine, but DISH has put billions into its effort, and it needs to find a partner soon, or risk some negative attention (potentially from regulators).
T-Mobile shareholders, on the other hand, are in a good position. The recent merger will be great for the business, whether it precedes another merger or not. Unlike some of the other players that are being snatched up at cheap prices, T-Mobile has a healthy business that's not undervalued.
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The article DISH's Options in the Telecom Arena Are Thinning originally appeared on Fool.com.Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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