Dish Network Corp. shares are rising in Monday trading after the company was reported to be the leading bidder for the assets that Sprint Corp. and T-Mobile US Inc. would likely have to sell to win regulatory approval for their pending merger, but one analyst isn’t sure such purchases make sense for Dish.
In fact, MoffettNathanson analyst Craig Moffett’s concerns go deeper when it comes to Dish’s DISH, +3.86% supposed interest in Sprint’s Boost Mobile prepaid business as well as some spectrum: “We’re not sure why that deal is sensible for anyone involved.”
In Moffett’s view, satellite-TV operator Dish has “more spectrum than it knows what to do with” but is short on both money and ground facilities. A deal for Sprint’s S, +1.28% spectrum and Boost business wouldn’t help, he reasoned. And while Dish’s chairman has expressed interest in entering the wireless business, Moffett sees only a “superficial” connection between Dish’s existing satellite business, which caters to rural customers, and Boost’s prepaid business, which caters mainly to urban consumers.
Dish could also face distribution issues if it were to buy Boost, since the brand lost its Walmart Inc. distribution channel and presumably wouldn’t be able to count on sales from Sprint Corp. stores either if the carrier were to divest Boost.
“That would leave Dish with a brand that has a churn rate as high as 5% per month to be spun off with an inadequate distribution front end, and with no realistic path to replace that front end before the subscriber base was, well, gone,” Moffett wrote.
He’s also unsure why T-Mobile TMUS, +0.49% would allow for the sale of these assets.
“If the reason T-Mobile wants to do this deal is to fix the industry structure and to get midband spectrum (Sprint’s 2.5 GHz), then a deal like that wouldn’t just make the industry structure worse, it would also, at least based on what has been reported, require divesting some of Sprint’s 2.5 GHz spectrum that is supposedly the raison d’être for the deal in the first place,” he said. And Dish might band with a giant like Amazon.com Inc. AMZN, +0.88% to get its hypothetical wireless network running, creating a fourth player in the market that would have strong backing and an incentive to discount given Dish’s debt positioning.
“At the end of the day, a bad deal is worse than no deal at all,” Moffett concluded—except for Sprint, whose prospects are “so bleak” without one.
Dish shares have gained 56% so far this year, as T-Mobile’s stock has risen 18% and Sprint’s has climbed 22%. The S&P 500 SPX, +0.09% is up 15% in that time.
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