The Love Triangle from Hell
It was bound to happen. Sprint, the 3rd place American Network operator, has been looking for suitors for some time and with a price tag north of $20 Billion, it’s a big acquisition target. Softbank, the Japanese conglomerate, tried to purchase a controlling interest in Sprint for roughly $20 Billion, but today, news comes out that Dish Network, the US Satellite operator, has bid $25.5 Billion. What a crazy set of circumstances; let’s break it down!
The Case for SoftBank
As the low-cost leader in Japan, SoftBank, which was originally a spinoff of NTT Docomo, attacked the Japanese market with a cost cutting attitude that drove prices to the lowest levels in the world. That same attitude could profitably be applied to the US market, and we see Sprint’s investment in that strategy through Sprints Wholesale efforts, which are the strongest among any of the National Providers. All of this seems to make a lot of sense for Softbank, except for the technology portfolio (Sprint is a mess on the network side. IDEN, LTE, CDMA, WiMAX; all that and the kitchen sink), but Softbank could help Sprint get through the tech issues quickly.
All in all, from a consumer standpoint, there’s a lot to like about a Softbank acquisition if you can stomach foreign ownership.
The Case for Dish Network
The case for Dish is simple. Kill or be killed. Let’s look at Dish’s two prime competitors plus one. First, Comcast, which owns NBC, and by extension, Hulu. They own the network and content. Second, AT&T, which owns no content but has excellent content distribution networks and content licensing arrangements along with owning the biggest network in the land. They own a really big network and license the content aggressively. Dish owns the network, albeit a small one, and licenses the content, but they don’t have leverage. No one else wants to use Dish’s network, except Dish, and, because of this, their distribution leverage is lower, which in turn increases their cost of acquiring content. For Dish, owning Sprint is adding an exceptionally large distribution channel: wireless. The plus one is Netflix, which owns tons of content, but has only recently gotten into the network game through their CDN offering. While Netflix can’t exist without the networks which support it, its lack of this same infrastructure is what puts it into the dominant position in the market (relative to Sprint, Softbank and Dish, particularly with respect to margins).
Softbank buying Sprint is business as usual; Dish buying Sprint is profound business transformation. Overnight, Sprint would be a much different company.
Softbank is big, like $5 Trillion Yen per year (that’s Trillion with a T; and ~$52 Billion USD for those keeping score). Dish Network has a market cap of approximately 16 Billion USD. Dish has to put together a debt and financing package that’s 700 Million dollars higher than their market cap to purchase Sprint. That’s a lot of debt at a considerable ratio to Dish’s current value. Dish has to believe this is a deal worth betting the longevity of the company on, I don’t know that to be the case.
It’s a somewhat bizarre acquisition for Dish but one that could ultimately prove quite valuable for the Dish Network team. I think Softbank would be a better steward of the Sprint empire, but it is my personal opinion that Dish will beat out Softbank if only because of Dish’s roots in the US. I don’t know that to be the right decision, but that’s what my gut is telling me: Dish will win in the short term, but in the long run this will be a worse acquisition than Sprint buying Nextel. Besides, I can’t see the US abdicating responsibility for the PSAP system, which runs 911, to a foreign empire.