Ergen: Mobile Video Driving Sprint Proposal

Dish Chief Likens Deal to Closing Minutes of Seinfeld Episode
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Dish Network chairman Charlie Ergen said the proliferation of mobile video is one of the biggest drivers of his pursuit of wireless giant Sprint Nextel, adding that his $25.5 billion bid is like the closing two minutes of a Seinfeld episode, when the earlier seemingly disparate 28 minutes finally come together.

It wasn’t the first time Ergen used the Seinfeld analogy – he used in it 2011 when his wireless plans were first taking shape.

Back then, analysts and investors were wondering aloud why the satellite giant was spending billions on accumulating  wireless spectrum. Back then he said that the investment community would have to wait and see what the final two minutes of this particular Seinfeld episode would be. On Monday, he removed the veil.

“This isn’t something that we just thought of yesterday,” Ergen said. “…This is the culmination of a lot of years of work, where we’ve been putting a lot of things in place, whether it be the purchase of spectrum in auctions, the acquisition of Sling Media, all those things come together now with the merger with Sprint, to make a very unique, powerful company.”

The deal, announced this morning, would consist of $17.3 billion in cash (about $4.76 per share) and 0.059 shares of Dish stock for every share of Sprint, worth an estimated $8.2 billion.

In a statement, Sprint said it was currently evaluating the proposal.

“Sprint Nextel today confirmed it has received an unsolicited proposal from Dish Network to acquire the company,” Sprint said in the statement. “The company said that its Board of Directors will evaluate this proposal carefully and consistent with its fiduciary and legal duties. The company does not plan to comment further until the appropriate time.”

Ergen, on the other hand, was downright chatty, opening the conference call by stating the world of data and video has been “exploding” in recent years, primarily because consumers want access to video whenever and wherever they want.  While data usage demands are skyrocketing, Ergen added the wireless pipes to bring that access are increasingly clogged.

He added that while cable operators have done a good job in providing video, broadband and data inside the home on different devices, and wireless outlets have provided access to mobile video data and voice for years, no single company has managed to do both well.

“There really is no one company on a national scale that puts it all together. The new Dish/Sprint will do that,” Ergen said on the conference call.

The combined Dish/Sprint would have twice the bandwidth capacity of its closest rivals – AT&T and Verizon – and its unique relationships with programmers would allow it to offer a compelling mobile video product as well.

The potential market, according to Dish is huge.  Dish estimates that its 14 million satellite TV subscribers represent about 35 million mobile users that are potential Sprint customers. In turn, Sprint’s 49 million existing mobile customers represent about 17 million homes that are potential targets for Dish satellite service.

Executive vice president of corporate development  Tom Cullen said on the call that 18 million homes across the U.S. don’t have access to broadband and 35 million only have access to speeds of 6 Megabits per second or less.

But Ergen and company won’t necessarily be the low-cost alternative in the mobile space. Both Sprint and Dish have carved out niches with price-conscious consumers, but Ergen demurred on the call when asked whether he planned to shake up the pricing model.

“We’ve thought through a lot of innovative ways that we think the business could be better than it is today,” Ergen said. “I think of it as a consumer. I’ve asked people what they like or don’t like about their service. I don’t think it’s rocket science. I don’t think you have to be a marketing expert to just go  and ask ‘what do you like about what you’ve got and what don’t you like,’ and then you  change the things people don’t like. I think we’ll make it simpler; I think Sprint is well on its way to a quality network;  I think we can give you more services and combine services together in a seamless manner.”

The FCC has been eager to strengthen competitors to the two major players in the market, Verizon and AT&T, but Free Press doesn't see this as filling the bill.

"These Frankenstein-style mergers among weaker players are no substitute for real competition in the mobile, broadband and video markets," said Free Press Research director Derek Turner. "They simply reflect the fact that policymakers have failed to foster competition in those primary markets. Until something is done about the market power that companies like Comcast, Verizon and AT&T abuse daily, consumers will be stuck paying higher bills for mediocre services. No merger at the bottom will do anything to change that reality."