While a merger between Dish Network and T-Mobile US would increase pressure on rivals AT&T and Verizon, tower companies could benefit, analysts say. As reported yesterday, Dish and T-Mobile, the second-largest DTH and fourth-largest wireless players…
While a merger between Dish Network and T-Mobile US would increase pressure on rivals AT&T and Verizon, tower companies could benefit, analysts say.
As reported yesterday, Dish and T-Mobile, the second-largest DTH and fourth-largest wireless players respectively, are reportedly in early-stage talks about a merger.
Analysts agree that such a merger would have major strategic and financial benefits for both parties, given the trend toward converged services and the growing popularity of mobile video.
Macquarie Research analysts noted that the combined company could offer bundled consumer products, including OTT Sling TV and mobile services, and have about 130 MHz of spectrum (excluding that won in the recent AWS-3 auction) – enough to sate T-Mobile’s spectrum needs for five to 10 years.
“Innovation will accelerate as both companies are disruptive in their respective spaces with similar corporate DNA,” they said.
Wells Fargo analyst Jennifer Fritzsche also believes the merger would enable the combined company to get in on the content game, which is becoming increasingly important for wireless carriers.
However, it would have a much less developed network than leaders AT&T and Verizon, meaning it not immediately become truly competitive, she said.
“A merger would create a new competitor in delivering video over wireless, a strategy Verizon is strongly pursuing,” she said, noting that the combined company would have the scale to negotiate better content deals.
Spectrum at core of debate
Spectrum has been central to the speculated deal given that Dish, controlled by billionaire Charlie Ergen has stockpiled – but not yet deployed – billions of dollars of it.
Meanwhile, German-owned T-Mobile controls only about 12% of the sector’s spectrum capacity, significantly less than AT&T and Sprint, the third-largest wireless player.
Verizon, which controls about 20% of spectrum, is also considered to be urgently in need of additional airwaves.
Ergen has previously spoken of T-Mobile’s simpler network design, more common spectrum bands and dense network, but said the cellco needs to exist in more places – something the proposed merger would achieve.
Taking AWS spectrum into account, Evercore ISI analyst Jonathan Schildkraut said T-Mobile US has about 84 MHz of spectrum and Dish about 81 MHz, with both controlling airwaves in the AWS and PCS bands as well as a small amount in the 700 MHz band.
The newco would be able to provide wireless broadband in rural markets and add significant spectral capacity to T-Mobile’s existing network in more densely populated areas, he said.
Resources to boost scale
Turning to the financial benefits of the potential deal, Schildkraut noted that Dish generates a decent amount of free cash flow (FCF) on its core business, while T-Mobile is expected to become FCF positive this year.
“The combination of growing cash flows would allow for more aggressive network investment – particularly in rural markets where T-Mobile needs additional scale,” he said.
Fritzsche noted that the combined Dish-T-Mobile would still lack scale on the wireless side, where it has 56.8 million subscribers. In comparison, AT&T, Verizon and Sprint respectively have 121.78 million, 108.6 million and 56.1 million.
The deal could in fact be positive for AT&T and Verizon, said Fritzsche.
“T-Mobile US may become less disruptive if it has found a buyer and must focus on profitability. AT&T could also be logical buyers of any mid-band spectrum that needs to be divested as part of the transaction.”
The deal, she continued, would be a disappointment for Sprint, which had set its sights on a merger with T-Mobile. It may however give Sprint, which has more spectrum than any other carrier, with an opportunity to sell airwaves to the likes of Verizon.
Other analysts have speculated that Sprint may make a rival bid for T-Mobile, although this would likely face greater regulatory hurdles.
Towercos likely to be big winners
Tower companies are likely to benefit from a Dish-T-Mobile merger given that Dish needs to deploy the spectrum it has amassed, several analysts have commented.
Spencer Kurn of New Street Reseach said he believes the merger would prompt Dish to deploy its spectrum across most, if not all, of T-Mobile’s 53,000 or so macro sites.
Crown Castle, which bought towers from T-Mobile in 2012, has the largest exposure of any towerco to T-Mobile, he said, meaning it would be a major beneficiary of the merger.
If the merger does take place, the path to deployment would become much clearer and the market will start pricing it in, Kurn said.
“CCI has best positioned itself to capture additional growth by acquiring the T-Mobile and AT&T tower portfolios, although they have surrendered a lot of upside through their generous MLA terms.
“If this deal happens and Dish’s spectrum deployment becomes more likely, our organic growth expectations [for towers] would rise even further.”
