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DISH Not Running Out of Dance Partners

NEW YORK (TheStreet) -- While everyone is talking about DirecTV (DTV) and AT&T (T - Get Report), those looking for the next merger in this space might want to speculate on whom DISH Network (DISH - Get Report) and its chairman, Charles Ergen, might choose to partner with.

DISH actually started this latest round of consolidation last year through its failed efforts to get bandwidth through Sprint (S). It finally succeeded in getting enough mobile frequency to launch a DishOnline TV service this summer, but with a market cap of just $27 billion, DISH is now a minnow in a sea of sharks.

Most speculation currently involves DISH going after T-Mobile (TMUS), which has a lot of mobile spectrum, as TheVerge wrote this month, but Ergen admits he can't outbid Sprint for those assets, if it comes to that.

So maybe he should look in a different direction.

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Both landline and mobile telephony are becoming one with cable because TV is able to use broadband bandwidth to efficiently extract money from customers. Phone calls, by contrast, are a low-bandwidth service.

But the key to making this work is vertical integration. It's not only about owning the pipe, but also about controlling the programming, so that you write checks to yourself. In the end everyone wants to be Comcast (CMCSA).

This model is well advanced in Europe, where satellite broadcaster BSkyB controls expensive rights on programming. This has forced British Telecom (BT), which is like AT&T in England, into the market for sports rights.

So maybe DISH's best bet now is to merge with a programmer.

If Ergen is thinking that way, Twenty-First Century Fox (FOXA) would be the obvious choice. One reason Fox split from News Corp. (NWS) was to make a second run at BSkyB, of which it owns 39%.

Last week, BSkyB was moving to consolidate its European footprint by taking over Sky Deutschland and Sky Italia, a $13.8 billion deal on top of its current $22 billion market cap. 

A deal with DISH would dramatically improve Fox's global satellite footprint, and the numbers fit. Fox's market cap is $77 billion, against $27.5 billion for DISH.

Taking a controlling interest that keeps DISH independent, similar to Fox's BSkyB stake, might cost just $12 billion, and could put Ergen in line to take over management of all of Fox's direct broadcasting assets.

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