NEW YORK ( TheStreet) -- The consolidation of the U.S. wireless industry into four competitive nationwide players may be the most important consumer story of this decade. Too bad the process appears to be veering into a game of shakedowns and back-alley poker.
The brinksmanship exhibited by Dish Network (DISH) in trying to block Sprint's (S) acquisition of Clearwire (CLWR) and the carrier's planned takeover and recapitalization by SoftBank, in addition to a venomous hedge fund battle over the T-Mobile (TMUS - Get Report) and MetroPCS merger, indicates the narrow interests of a few key players could govern whether or not the average American will see falling wireless bills and rising service, in coming years.
Wireless consolidation is a daily news item mostly because so many hedge funds, telecom conglomerates, card-playing CEO's and lobbyists have an economic interest in the eventual outcome. But in this Wall Street horse race, the ordinary consumer is poised to bear the risks taken by speculators who have nearly overrun the process.
Simply put, it is the Wild West in the wireless industry.While there is time left to salvage the best outcome for the nation's 326 million wireless subscribers, it appears the handful of parties with a say have an incentive to promote a frenzied conclusion to consolidation, which may leave the industry worse off. Hedge funds seem ready to squeeze every penny out of the successor companies to a scattershot wireless industry, after building large positions in consolidators such as Sprint, Clearwire, MetroPCS and Leap Wireless (LEAP) when they were priced for failure. An increasing price paid by the acquirers of Sprint and Clearwire is likely to wind up the expense of consumers by way of higher wireless fees or patchy service, given the amount of money needed to put both companies in a sustainable financial position. Meanwhile, Dish Network, a late entrant to the wireless industry, is trying to derail a consumer friendly combination of Sprint, SoftBank and Clearwire, in an effort to maximize the value of wireless spectrum it scavenged from bankruptcy courts. Dish and its chairman Charlie Ergen are currently using a high cost tender offer for Clearwire shares to delay Sprint's takeover of the internet provider and its spectrum. Dish has also resorted to not-so-coy xenophobia in a lobbying effort to thwart SoftBank's takeover of Sprint on national security grounds, claiming the Japan-based telecom has ties to Chinese cyber-attack artists. Even after Sprint and SoftBank agreed to concessions on the usage of Chinese wireless equipment and passed a national security review, Dish pressed its fear mongering. Dish has an alternative proposal for Sprint. Instead of recapitalizing the money-losing telecom to debt levels in line with financially stable dividend payers like AT&T and Verizon, Dish wants to bundle its satellite TV service and its spectrum assets into a national broadband, wireless and TV player to challenge existing triple-play offerings.
Dish's Debt-Laden MoonshotDish's bid to enter the wireless market with Sprint is a moonshot, because of debt needed to fund a deal, the expectation of upwards of $10 billion in cost synergies and the company's untested melange of spectrum and service offerings. Were Dish to win Sprint, the combined company would also be the most highly leveraged among large telecoms, leaving little-to-no room for error. Ergen's motives to enter the wireless market may be sincere; however, many industry analysts and investors have interpreted Dish's proposals for Clearwire and Sprint as a financially savvy way to broker a network sharing agreement with SoftBank. Even after winning its tender, Dish would only hold a minority stake in Clearwire shares that would simply be used frustrate Sprint and SoftBank's efforts to utilize Clearwire's assets, according to industry analysts.
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