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Cable Technology Feature Article

January 15, 2013

Dish Bids for Clearwire: Unintended Consequences

By Gary Kim, Contributing Editor

Though most observers believe it is highly unlikely that Dish Network actually could thwart Sprint’s acquisition of Clearwire (News - Alert), most think Dish Network could well emerge with important benefits, even if it fails. Among those advantages could be a business agreement of some kind that allows Dish to work with Sprint to build its network.

On the other hand, such bids sometimes have other unintended consequences. Other contestants in the subscription video business or telecom business, especially AT&T (News - Alert) and DirecTV, might conclude that it is time to launch their own bids to acquire Dish Network.

The issue is that a successful Dish acquisition of Clearwire would complicate matters greatly, either for AT&T, because of spectrum ownership considerations, or for DirecTV (News - Alert), in terms of the obligations (strategic fit and debt) Clearwire would bring.

Analyst Tim Farrar, a satellite communications and wireless spectrum consultant at TMF Associates, speculates that the offer from Dish Network to buy Clearwire could trigger DirecTV or AT&T bids for Dish.

If Dish Network wound up owning Clearwire spectrum, it would be harder for AT&T to buy Dish because of spectrum ownership limits in the U.S. mobile industry.

On the other hand, if DirecTV is interested in acquiring Dish Network, the same general problem arises, namely that it would be harder for DirecTV to swallow a Dish with Clearwire obligations attached.

Some who look at the U.S. video entertainment business have speculated for more than a decade that, ultimately, both DirecTV and Dish Network would wind up as wholly-owned subsidiaries of Verizon (News - Alert) and AT&T.

The logic there is that such moves would add much more heft to Verizon and AT&T video businesses, where there are advantages to scale. In the middle of 2012, for example, DirecTV had about 21 percent market share, while Dish had about 15 percent.

AT&T had about four percent share of the video market, while Verizon had about five percent share.

Were AT&T to buy Dish, it would have 19 percent share of the video market. Were Verizon to buy DirecTV, it would have 26 percent market share.

Consider that Comcast (News - Alert), the biggest U.S. cable operator, had about 23 percent national market share in video about mid-2012. So the two largest U.S. telcos buying the two U.S. satellite video providers would make telcos two of the top three U.S. video providers, instantly.

If you believe the triple or quadruple play offers are essential for the future fixed networks business, then you might also agree that such acquisitions of the satellite providers makes strategic sense.

Sooner or later, those deals are going to happen.

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Edited by Brooke Neuman

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