Regulatory Hurdles
According to Reuters, the Federal Communication Commission has ensured that it would not push either company to sell spectrum. The body will treat the Sprint and Clearwire deal on the same grounds as the Softbank’s bid to acquire Sprint Nextel Corporation (NYSE:S). The acting Chairwoman Mignon Clyburn has already circulated the draft order, with recommendations to approve the deals, to other two members of the committee.
Softbank has also received approval for its Sprint acquisitions from concerned U.S. regulatory bodies. According to Reuters, both U.S. anti-trust and national security regulators have approved Softbank’s bid. After beating DISH Network Corp (NASDAQ:DISH), this was the only factor that could have destroyed this deal. The access to Clearwire’s 4G technology and investments from Softbank will make Sprint Nextel Corporation (NYSE:S) a formidable player in the telecom arena.
The outcome of this acquisition struggle has been in the best interest of both shareholders and Sprint. Sprint Nextel Corporation (NYSE:S) under Dish would have been a highly leveraged company. This would have disabled Sprint from investing heavily in infrastructure, a necessity in the highly evolving telecom sector. The control over Clearwire’s airwaves and investment backing from Softbank make Sprint an excellent long-term investment.
Entry Point
Dish has lost a fiercely competitive bidding war, but the company is still not done. It will continue to look for an entry point into the telecom industry. Dish is also working in a maturing industry and is struggling to find more organic growth. This is a primary reason behind the high M&A activity in the industries related to wireless services.
Another method to drive growth is diversification. ‘Quad-play’ is an upcoming trend in the European telecom industry. Leading telecoms like Telefonica and Vodafone are acquiring cable companies to offer television, broadband, mobile and fixed-line under the same brand.
It is highly likely that Dish is striving for the same thing by entering the telecom industry. The 5-year average revenue growth rate of Dish is a poor 5%, and the company needs to look at other avenues for growth. That is why it is trying for acquisitive growth to supplement its slow organic growth rates. After losing the Sprint Nextel Corporation (NYSE:S) and Clearwire bids, it will look for the next best entry point.
The next best option available to Dish is none other than T MOBILE US INC (NYSE:TMUS). It is the fourth largest telecom provider in the United States with approximately 34 million subscribers. The market capitalization of T MOBILE is around $18 billion and it posts annual revenues of around $20 billion. The company has a license to operate a 1900 MHz GMS PCS digital cellular network. It also has a license to operate a 1700 MHz/2100 MHz UMTS AWS digital cellular network. T MOBILE US INC (NYSE:TMUS) offers Wi-Fi services under the T MOBILE hotspot brand.
The company has drawn a lot of interest from buyers over the years. It accepted a $39 billion purchase offer from AT&T late last year. U.S. antitrust laws ruined the celebrations as a lawsuit from Department of Justice stopped the sale. Dish is still avoiding the T MOBILE US INC (NYSE:TMUS) question, but it is no secret that the only possible entry point into the U.S. telecom sector is through an established subscriber base. The owner of T MOBILE, Deutsche Telekom AG (ADR) (OTCMKTS:DTEGY), will be an eager party to any potential bid by Dish. The German telecom giant is already trying to exit the U.S. market and would have succeeded if antitrust obstacles had not halted AT&T.
Bottom-line
The acquisition of Sprint by Softbank has a made a stronger company which can take on AT&T and Verizon. The control over Clearwire will give it access to the much coveted 4G network. These developments have made Sprint an excellent long-term investment in the U.S. telecom sector.
Dish might have given up on Clearwire, but it has not given up on its telecom ambitions. It plans to offer a form of the ‘Quad Play’ offerings in the United States which are gaining traction in Europe. The next best target for Dish is T-Mobile. The company is the fourth largest carrier in the U.S. and is certainly up for grabs. The valuation of T-Mobile will improve as Dish starts its due diligence for a potential bid.
The article After Losing Sprint Bid, What’s the Next Target? originally appeared on Fool.com and is written by Mohsin Saeed.
Mohsin Saeed has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mohsin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
