T-Mobile (NASDAQ: TMUS) and Sprint (NYSE: S) are back at the negotiating table after a five-month hiatus. Combining the two companies would put them on a much better footing to compete with Verizon (NYSE: VZ) and AT&T (NYSE: T), which each have significant size advantages in the market.
A combined T-Mobile and Sprint would have a much stronger network and the resources to make it even stronger. The two have combined spectrum holdings totaling over 300 MHz in depth. By comparison, AT&T has 178 MHz and Verizon has 114 MHz, not including the millimeter wave spectrum each company acquired via acquisitions.
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T-Mobile and Sprint may be required to sacrifice some of their spectrum holdings in order to complete a merger. If not, it would put AT&T and Verizon at distinct disadvantages with regard to their spectrum positions.
That's where DISH Network (NASDAQ: DISH) comes in.
Spectrum for sale
DISH has been amassing wireless spectrum licenses for years now, seemingly unable to pass up an opportunity to buy them on the cheap. When bidding wasn't as fervent during last year's 600 MHz incentive auction, DISH ended up spending $6.2 billion. The only company that spent more was T-Mobile, and it actually has a wireless network.
DISH now has around 93 MHz of spectrum, and it's under pressure to start building out its own wireless network.
But building a wireless network requires a lot of capital expenditures. And considering DISH's hesitancy to start doing so despite strict deadlines for its use of its spectrum licenses, it seems the company would rather license or sell its spectrum than actually use it.
The two obvious buyers would be AT&T and Verizon. Both have the means to pay for it, and both have the capital to deploy the spectrum as well. But right now neither have a huge incentive, as they're more focused on acquiring millimeter wave spectrum. DISH's holdings are confined to the low- and mid-bands.
T-Mobile and Sprint combining could change things
DISH's holdings become a lot more attractive to Verizon and AT&T if T-Mobile and Sprint combine their spectrum holdings. Suddenly, Verizon and AT&T would have a massive deficit in spectrum compared to the competition, and DISH is offering an easy source of mostly unused spectrum.
On the other hand, if the government requires T-Mobile and Sprint to give up some spectrum in order to combine, or they choose to do so of their own volition, DISH's offerings become a lot less appealing. With spectrum from T-Mobile-Sprint flooding the market, the value of DISH's spectrum would decline.
Not only would a divestiture from the merged company put more spectrum licenses on the market, it would also reduce the gap between itself and Verizon and AT&T. That means an increased supply as well as a relative decrease in demand -- a double whammy for DISH.
The clock is ticking for DISH
Some of the spectrum DISH holds came with stipulations from the Federal Communications Commission (FCC). For example, DISH needs to deploy 70% of the 700 MHz spectrum it acquired in 2008 by 2020. The FCC put similar mandates on its AWS-4 spectrum. It's currently building out a network designed for Internet-of-Things (IoT) applications using those spectrum bands, and it took on $1 billion in debt to fund that build-out last March.
The longer DISH takes to off-load the spectrum, the more it has to spend to deploy it. It might see a return on its capital investment as the IoT space grows, but it's not clear it's a space in which DISH really wants to participate.
There was never a real concrete plan for how DISH would use its spectrum, and now it's relying on outside forces like the potential T-Mobile-Sprint merger to improve the value to a point where it can sell.
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