Published January 09, 2013
Satellite mogul Charlie Ergen, the billionaire founder and chairman of Dish Network and EchoStar, has cemented his reputation as a wild card with a surprise $2 billion-plus bid for Clearwire as part of his push into the wireless industry.
The former professional card player, who made his fortune after starting out selling satellite dishes door-to-door, has spent more than $3 billion on wireless spectrum assets in the past few years in a bid to diversify Dish Network beyond satellite pay-television.
Ergen's latest bet counts as his boldest yet to become a player in the wireless space and sets the stage for a battle with rival Sprint Nextel for Clearwire Corp.
At the Consumer Electronics Show in Las Vegas this week, Ergen joked with trade show attendees around the Dish booth, and was polite and friendly - a persona in stark contrast to his usual hard-charging approach.
As the 59-year-old pressed the flesh, his company was making an unsolicited $2.28 billion bid for Clearwire, trumping Sprint's $2.2 billion offer.
Ergen has been raising eyebrows in the past few years by making acquisitions that do not seem core to his company's assets, which are concentrated heavily in pay TV. He founded Dish Network in 1980 as part of a company then called EchoStar, after selling satellite dishes from the back of a truck with his wife Cantey.
Today, he is one of the country's richest people with a net worth of at least $9 billion and controls the No. 2 U.S. satellite provider with 14 million subscribers. But after telling investor conference calls that the pay TV industry has matured, he has looked to diversify and bought video chain Blockbuster and companies with wireless spectrum such as DBSD and TerreStar in 2011.
"Like most visionaries he's a little different," said Dish CEO Joe Clayton on Tuesday, who has known Ergen for more than 20 years. "The boy can see around corners."
In the wireless space, "I would watch him closely because Charlie is always a disrupter," Clayton added. "I'd pay attention."
Analysts speculated that Dish's wireless bid for Clearwire is a power play meant to spark a bidding war with Sprint.
"If he doesn't get it, the worst is, he increases the price for Sprint. It's a classic Charlie Ergen move," said Wunderlich Securities analyst Matthew Harrigan.
Brean Capital analyst Todd Mitchell agreed that it is a typical business tactic Ergen employs, similar to how he invested in distressed debt of DBSD and TerreStar.
"I think it's a stalking horse bid and the reason why it's a classic move is because it's a hedge bet. His chief goal is not to get it," Mitchell said.
Ergen may also be trying to hurt Sprint, which it squared off against at the FCC late last year. Dish said Sprint's opposition to some of its spectrum plans impeded Dish's network building.
"At least part of this may be payback for Sprint's meddling in the (FCC) proceeding," said Tim Farrar, a telecom analyst at TMF Associates.
Farrar added that Dish's bid could be adding fuel to the fire over Crest's objections to Sprint's bid for Clearwire. Crest, one of the largest Clearwire shareholders, has said it may file a complaint with the FCC over Sprint not paying full value for Clearwire.
"It does give Crest a lot more to work with in its court fight," Farrar said.
Harrigan, the Wunderlich analyst who follows Dish, said that Ergen becoming a wireless player carries a "very high risk," with challenges ranging from competing against established incumbents like Verizon and AT&T and getting access to cell towers.
Ergen stepped back from his day-to-day running of Dish in May 2011 to focus on the company's wireless strategy. He spent the past year lobbying the U.S. Federal Communications Commission to let Dish use the wireless assets it acquired.
To investors, he has been vague about his wireless bets. In May 2011, he insisted he was employing a "Seinfeld strategy", or a plan that does not seem to make sense at first but comes together later.
He owns more than 50 percent of both Dish and EchoStar, the set-top box maker he spun out in 2008, and has voting control of both, which makes him less beholden to shareholders as executives at other Pay TV companies.
While the FCC finally rewarded his efforts by approving Dish's plans in December to build a wireless network, Ergen is still a newcomer to the telecoms industry, which is dominated by incumbents. But at CES, even the telecom heavyweights were buzzing about Ergen.
Verizon CEO Lowell McAdam called him a "smart guy".
When T-Mobile USA CEO John Legere was asked whether his company was interested in a potential relationship with Dish, Legere told Reuters, "the answer is obviously yes. They'd be interesting for us to talk to and we'd be fascinating for them."
Risk-taking seems almost natural for Ergen.
He has often recounted about how there was a 50-50 chance his company's first satellite would fail when launched into space on a Chinese rocket in the 1990s. The satellite launch succeeded and Dish went on to generate $14 billion in revenue a year.
A looming takeover battle for Clearwire is no stretch for Ergen, who has appeared in many highly public spats with companies and has taken his fights to courts across the country.
Ergen testified in a New York Court in October as part of a breach of contract case with Cablevision over a failed joint venture called Voom. But on the same day he was scheduled to take the stand, Dish paid Cablevision $700 million to settle the suit.
In May 2011, Dish paid $500 million to settle a patent infringement lawsuit with TiVo that had dragged on for about eight years.
Ergen provoked a lawsuit by all the major U.S. broadcasters last year for introducing a digital video recorder called the Hopper that has a feature that lets Dish subscribers automatically skip commercials and threatens the broadcasters' revenue.
Analysts say Ergen loves leverage, or getting the upper hand over other companies, which may be the reason he finds himself in so many corporate battles.
"This is the Dish way," Mitchell, the Brean Capital analyst said. "Anytime they get a moment of leverage, they'll think 'let me get you for cheaper,' and will start negotiating."
Still, despite the uncertainty of Dish becoming a wireless player, investors seem to believe in Ergen's bid to move Dish away from its pay TV roots. Shares are up 26 percent since December 30, 2011 while EchoStar shares are up 65 percent in the same period.
A day before Dish's bid for Clearwire became public, Ergen was entertaining people at the Venetian casino in Las Vegas where Dish had just held a press conference.
Asked if he was going to hit the poker table to take a whirl at his old profession, Ergen said no and joked, "me playing poker would be a gamble."
(Additional reporting by Sinead Carew in Las Vegas; Editing by Ronald Grover and Jeremy Laurence)