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Sprint Nextel Corporation (S), DISH Network Corp. (DISH): The Future of the Wireless Industry

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Sprint Nextel Corporation (NYSE:S) has been busy discussing its future recently, after the company received 2 different offers to effectively purchase the company. Both of the offers come from large companies that do not currently have operations in the US Wireless business: Softbank, which is a large Japanese Wireless and Internet operator, and DISH Network Corp. (NASDAQ:DISH), which operates a satellite TV business in the US. To add another twist, both offers are different: whereas Softbank is offering to basically take control of Sprint Nextel Corporation (NYSE:S) by purchasing 70% of the company for $20.1 billion, DISH Network Corp. (NASDAQ:DISH) is looking to buy the company for $25.5 billion. Each company likely has a different vision for what they would do with Sprint as well: Softbank is likely to continue to operate it basically as a wireless provider, while Dish would like to extend its Satellite TV services to the wireless market, although how they would go about this is not clear.

Sprint Nextel Corporation (NYSE:S)

The Impact

Either potential deal would clearly have numerous direct and indirect effects on both Sprint Nextel Corporation (NYSE:S) and the industry as a whole. One of the largest potential impacts involves the large influx of cash that Sprint would see; the Softbank deal would put $8 billion of cash into Sprint Nextel Corporation (NYSE:S), which could use it several ways. One of the most intriguing is to take over a larger portion of Clearwire, a company Sprint already owns around 50% of, and which provides 4G wireless technology.

This potential deal would allow Sprint Nextel Corporation (NYSE:S) to make a large leap in 4G technology, an area in which they currently lag far behind AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ). The deal could also allow Sprint to roll out a 4G network that is potentially different than what is currently offered, and in a much more rapid timeframe. Additionally, as a new owner, Softbank does have a history in this space, as they took over Vodafone’s Japanese operations and increased the net income seven times after the takeover–this past success and future possibility leaves some areas of concern for both Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T).

AT&T and Verizon

Another major question is what impact a change in ownership of Sprint would have for the two biggest wireless providers in the US: Verizon and AT&T. While in the short-term neither deal is expected to have a major impact on either Verizon or AT&T, this may not hold true in the long run. Verizon, in particular, could be vulnerable to the multi-media approach that Dish would be expected to undertake. While Verizon does offer its FIOS service in some markets, it has somewhat limited distribution compared to DISH Network Corp. (NASDAQ:DISH)’s nationwide service and AT&T’s U-Verse coverage, both which cover a large chunk of the US population. However, all of these services are likely to continue to increase their coverage areas, providing healthy future competition regardless of the outcome of a Sprint deal.

However, one thing that could complicate the whole situation is if Verizon is able to purchase the rest of Verizon Wireless from Vodafone, who currently owns 45% of Verizon Wireless. What impact this would have on the other carriers is unknown at this point, but it would add a significant amount of cash flow to Verizon’s operations and give them more breathing room to make moves in the industry. They could use that cash similarly to what Sprint might do by expanding their network and taking an even bigger lead than they already have.

One thing that does seem unlikely is any further expansion via acquisition. With the T-Mobile/AT&T merger being denied by the government, it seems unlikely than any of the “Big 4” will be allowed to consolidate with each other in the near future. T-Mobile’s acquisition of MetroPCS not withstanding, the best way for these companies to grow at this point is organically, and perhaps by doing what DISH Network Corp. (NASDAQ:DISH) wants to do: expanding the offering to include more multimedia services.

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