Tuesday, April 16, 2013

With Sprint Nextel bid, Dish vies for domination of burgeoning US market for multiscreen pay-TV services

USA: Making a bid to dominate the booming U.S. market for multiscreen pay-TV services—an area that is expected to more than triple its scope from 2012 to 2015—Dish Networks has forwarded a $25.5 billion to offer to buy wireless carrier Sprint Nextel.

The proposal represents a competitive offer for Sprint Nextel compared to a recent bid from Softbank, which consisted of $12.1 billion in cash and $8 billion in new capital from the Japanese firm for a 70 percent stake in the US carrier.

A potential Sprint Nextel acquisition would give Dish the essential bandwidth required to take a leadership position in multiscreen services.

The number of multiscreen devices accessing services from pay-TV networks in the United States is expected to surge to 338 million units in 2015, up from 112 million in 2012.

Multiscreen is defined as a service that allows the viewing of video on multiple platforms beyond the traditional mode of televisions connected to cable or satellite set-top boxes (STBs). The multiscreen device category comprises a range of products, including smartphones, media tablets, portable media devices, video game consoles, personal computers and Internet-enabled televisions (IETVs).

“Dish sees strong growth potential in the areas of convergence, multiscreen and connectivity across all platforms, which it sees as the main rationale behind a potential merger with Sprint Nextel,” said Dexter Thillien, senior analyst, mobile communications at IHS.

“Beyond the greater scale and efficiency that a combined carrier would bring, Dish sees the possibility to offer content both in and outside the house as a clear path to leadership for the company, as the explosion in data traffic is being led by video demand. The satellite pay-TV provider has always wanted to enter the wireless space, because it can diversify its current offerings—and because wireless has seemed to be the most sustainable path to growth in the US market. Dish has acquired spectrum over the years, but the company was always aware it needed a partner to launch services given that rolling out a network from scratch would have taken too much time and money.”

Clearing the path to domination
Dish has always stated that it needed a partner if it wanted to expand its current spectrum holdings. The company had put forward a counteroffer to Sprint for Clearwire as a way to try and get both companies to the negotiating table and discuss a partnership. But with its offer likely to be rejected and leaving it with nothing, Dish decided that the best way forward was to make a full bid for Sprint, which is likely to fully own Clearwire in the short term, and as such put itself in direct competition with Softbank for the carrier.

Full spectrum
“Spectrum represents a crucial aspect of the proposed acquisition, as Dish hopes to combine its current holdings with those of Sprint and Clearwire, and create a carrier whose spectrum depth of 230 megahertz (MHz) will dwarf its rivals in the market,” Thillien said.

Dish owns 45MHz of frequency, split between 40MHz in the satellite 2 gigahertz (GHz) band and 5MHz in the unpaired E-block in the 700MHz band, which it acquired during a 2008 auction for $711 million. Coverage requirements mean Dish must cover 35 percent of the population by mid-June, a condition it is likely to try to amend as part of its deal for Sprint. This would give the company spectrum in low, medium and high frequencies.

The 700MHz spectrum is of special interest to Dish for differentiation, as it sees three segments with strong growth potential: bundling, fixed broadband and mobile TV.

Making a bundle
On the bundling front, DISH could create the first compelling quad-play opportunity in the U.S. market. Multiplay services have lower churn than standalone services, but the other converged operators have yet to offer strong offers bundling both fixed and wireless services.

The cable companies have abandoned their wireless aspirations and have decided to enter partnerships with Verizon as part of their spectrum deal, while AT&T and Verizon have not pushed quad-play—even in areas where they offer fiber services. Opportunities do exist in that segment, with pricing and network quality of the utmost importance to attract consumers, while the cross-selling will also result in lower costs for acquisition, retention and marketing.

Broad opportunity in broadband
In terms of fixed broadband, Dish sees opportunities in both underserved and underserved areas. Cable and fiber have focuses on the denser areas, leaving the more rural parts of the country with either basic DSL or no service. Dish wants to offer a broadband through its outdoor antenna, bring 4G Long Term Evolution (LTE) to these homes as Verizon has done with HomeFusion. This would mean the service won’t directly compete in some areas with cable or fiber and even DSL technologies which are unlikely to be rolled out.
However, Dish will have to compete with similar fixed-wireless LTE services, which both AT&T and Verizon will look to roll out to more areas as they further reduce investment into fixed networks.

Going mobile
As for mobile TV or video, Dish will look to utilize its 700MHz holdings in the E-block and provide an offer which is not currently on the market.  The carrier will use a broadcast system to provide services to end-users, and the combination of satellite spectrum will create an efficient hybrid network which will only need a point of signal for several devices.

Dish can also leverage its spectrum to offer unlimited out-of-home video services, on top of specific content, thanks to the rights it owns as part of its pay-TV strategy. If Dish decided to bundle video services as part of an overall plan for end users, this could create strong competition for the other carriers that have attempted to monetize data through either add-ons or greater usage with data caps.

Let’s make a deal
Dish’s offer will be put to Sprint’s board, and should it accept it, Softbank will be allowed to make another competing offer the company. The Japanese company is likely to remain present in the fight for Sprint, and Dish’s deal could be seen as another way to get Sprint and Softbank to discuss partnerships, though in a much greater and confrontational scale than with the Clearwire counteroffer.

There are still many twists and turns to the story, but Sprint will have a new owner by the end of the year, with both prospective owners looking to create a different type of services to US customers. Dish will face some obstacles to its bid, and will need to invest heavily to ensure a strong quality of service to customers, should DISH be successful with its convergence strategy.

Source: IHS iSuppli, USA.

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