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NEW YORK (
Dish Network(DISH - Get Report) may be more inclined to pursue a merger with satellite TV giant
DirecTV(DTV) than a telecom such as
T-Mobile(TMUS - Get Report).
Dish chairman Charlie Ergen, who is known for his poker-playing ways, may have made his most revealing comments yet about how the company will look to enter the wireless market on an earnings call Tuesday.
After Dish reported below consensus second-quarter earnings, Ergen indicated that the satellite TV provider could table its most expensive acquisition efforts in the wireless market. Dish recently failed in bids for Sprint and
Clearwire(CLWR), two deals that could have helped the company make use of billions it holds in wireless spectrum assets.
Now, according to analysts, Dish's preference may be to sign a network sharing agreement with Sprint as a means of entering the wireless business. Meanwhile, the company could consider a second attempt at acquiring DirecTV, after U.S. antitrust regulators blocked a previous merger attempt about a decade ago.
"Mr. Ergen conveyed a clear preference for a network sharing agreement with Sprint over an acquisition or network sharing agreement with T-Mobile USA," Bryan Kraft, an Evercore Partners telecoms analyst, wrote in a Tuesday note to clients. "When asked about a potential combination with DIRECTV, we thought Mr. Ergen was constructive toward the eventuality of a DTV merger occurring."
Such a scenario would have seemed unlikely about a month ago, when Ergen was threatening to ruin Japanese telecom
SoftBank's acquisition of Sprint and was sued by Sprint in his efforts to buy Clearwire. Ultimately, Dish cost SoftBank and Sprint billions of dollars, as both merger efforts dragged on and investors pushed for rising takeover prices.
If Ergen proved to be a thorn in Sprint's side as it tried to find strategic partners to help it better compete in the wireless market, Dish's cash could cure an antagonistic relationship.
A network sharing agreement between Dish and Sprint would bring billions in new business to the telecom firm and help it replace the revenue it lost when fledgling wireless provider
LightSquared filed for bankruptcy. Ergen is currently trying to buy LightSquared for $2.2 billion in bankruptcy after buying up the company's debts, however, on Tuesday he was sued by the company's former owner Phillip Falcone of hedge fund
Harbinger Capital Partners.
Renewed merger efforts with DirecTV would also indicate Ergen continues to have the ambition to reshape the company he co-founded about three decades ago.
University of Colorado Law School presentation last year, the media-shy Ergen characterized Dish's failed 2002 effort to buy DirecTV as a time when he had risked the company's future and lost.
Now, given clear trends of declining users and slowing revenue growth at Dish's core satellite TV business, a merger could be more palpable with regulators. That is especially the case if Dish markets a prospective deal as a way to fund its move into the wireless business as a new nationwide provider of broadband, data and TV.
"We've never heard Mr. Ergen speak as openly and positively regarding the possibility of a combination with DIRECTV," Kraft, the Evercore analyst, wrote.
Ergen's new communication may reflect a dwindling number of options for Dish to reshape its business. While investors have lauded Ergen's savvy in combing bankruptcy courts for wireless assets that have become increasingly valuable as consumers shift to high data smartphones, recent consolidation has limited Dish's options. The company appears to have been a bidder for MetroPCS and T-Mobile, in addition to Sprint and Clearwire, and has so-far come up empty-handed in a frenetic 18 months of wireless industry consolidation.
AT&T's(T) recent acquisition of
Leap Wireless(LEAP), meanwhile, may have further limited Dish's options to move into the wireless market.
"Increasingly, and sensibly, that wireless strategy is likely to be a fixed wireless broadband one rather than one based on full mobility. If so, Dish Network would compete with its usual foes - the cable operators - rather than Verizon Wireless and AT&T Mobility," Craig Moffett, head of
Moffett Research, wrote in a client note.
While Moffett likened Ergen's quixotic communication on the company's wireless assets to a "Seinfeldian it-all-comes-together-at-the-end" strategy, the analyst highlighted a DirecTV merger as Dish's best path forward.
"It is increasingly clear that the only truly compelling combination would be with DirecTV," Moffett wrote.
Price Cartel Talk Masks John Malone's Cable Ambition-- Written by Antoine Gara in New YorkFollow @antoinegara