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Ergen's Dish may be on AT&T's menu

by Chris Nolter | Published December 20, 2011 at 12:09 PM

As AT&T Inc. and T-Mobile USA go their separate ways, the telecoms have to decide how to fill the holes left by the termination of their $39 billion merger.

For AT&T, led by chief executive Randall Stephenson, the driving issue was spectrum. The company must now be sizing up other sources for wireless licenses, including satellite TV mogul Charlie Ergen's burgeoning spectrum portfolio.

Wireless consultant Roger Entner of Recon Analytics LLC said the Dallas carrier needs to move traffic off its third generation, or 3G, network and onto its nascent 4G service, which uses long-term evolution, or LTE, technology.

"They really have to accelerate LTE and build that out more quickly both on a network perspective and on a device perspective," he said.

AT&T currently provides LTE service in 15 markets. It offers three phones and a tablet on the network.

Launching in New York and San Francisco are particularly important.

Entner said the carrier also has to push for resolution with the Federal Communications Commission over its $2 billion purchase of spectrum from Qualcomm Inc. It also needs to hope that the government brings more wavelengths to auction.

Christopher King of Stifel, Nicoluas & Co. suggested in a Tuesday report that Ergen's Dish Network Inc. could become the next target for AT&T, though there are certainly obstacles to such a deal.

The satellite television company paid more than $700 million for spectrum licenses in a 2008 auction.

Dish also has pending deals to buy spectrum-rich satellite communications companies DBSD North America Inc. and TerreStar Networks Inc. for close to $2.9 billion.

The DBSD and TerreStar licenses are required to use a satellite component in their service. Dish has asked for a waiver allowing it to forgo the satellite component of the service, which would make the licenses more valuable to AT&T. It does not yet have the waiver, however. Moreover, the FCC could put in place provisions that would prevent the company from making a windfall if it sold the licenses to AT&T.

"While it certainly remains a possibility that AT&T could try to buy Dish spectrum without buying the entire company," King wrote, "we believe Charlie Ergen realizes he is unlikely to ever get a better offer than from a moderately-desperate AT&T that needs spectrum and needs it quickly, and with the satellite TV industry's long-term business model being more uncertain than ever, we believe it more likely that AT&T will be forced to buy the entire company."

For T-Mobile USA the outlook is darker.

The company has continued to lose customers. It is the only national wireless carrier without Apple Inc.'s iPhone.

Parent Deutsche Telekom AG is due $3 billion as part of the regulatory breakup clause, although Entner notes there is no guarantee that it will invest the money in T-Mobile USA.

It becomes more likely that T-Mobile USA will put its more than 7,000 wireless towers back on the market.

Valuations of the portfolio have ranged from less than $2 billion to nearly $4 billion.

The termination of the AT&T merger actually makes the towers more valuable to independent tower operators such as Crown Castle International Corp. or American Tower Corp. that lease antenna space to wireless carriers. The merger would have removed a potential customer from the market.

In the worst-case scenario, Entner said, Deutsche Telekom would spin the Bellevue, Wash., unit, and T-Mobile USA would become a poorly financed orphan without the iPhone.

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Tags: AT&T | Dish | M&A | T-Mobile USA

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Ergen's Dish may be on AT&T's menu

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