Tuesday, 17 January 2012

AT&T considering buying Dish Network to solve its spectrum woes

Back before AT&T pulled out if its proposed $39 billion buyout of T-Mobile, Dish Network said it was interested in the nation's fourth largest carrier if AT&T's offer failed. Now, there is speculation that AT&T is considering a purchase of Dish Network to add much needed spectrum to the company. Bloomberg, in a report dated Monday, said a deal could come at the highest premium paid in over ten years for a tech takeover..

While AT&T's failed 9 month pursuit of T-Mobile allowed Verizon to add more ground between it and its closest competitor, it also ended with AT&T giving up some prized spectrum to T-Mobile as part of a break-up fee that was triggered when the former pulled out of the deal due to regulatory deadlock. In addition, AT&T had to pay $3 billion in cash to Deutsche Telekom as part of that fee. During AT&T's attempt to persuade the DOJ and FCC to green light the deal, Verizon was adding spectrum from Comcast, Time Warner and Cox Communications. And despitepurchasing some spectrum from Qualcomm, AT&T needs more, especially when Bloomberg points out that Verizon has 56% more LTE spectrum than AT&T.

There have been rumors that AT&T would look to add spectrum by making a acquisition of pre-paid carrierMetroPCS or by buying Leap Wireless. But that would put AT&T in the familiar place of having to get approval from the government and if AT&T had trouble buying T-Mobile, would the DOJ and FCC allow them to buy MetroPCS, especially since the pre-paid carrier has an LTE network? A purchase of Dish Network would come with a lot less regulatory hassle, something that AT&T brass would have to like.

Following FCC approval, Dish Network wants to move spectrum it had acquired from DBSD and TerreStar into mobile-device spectrum with a value of $9.4 billion. AT&T would probably have to pay $50 for Dish, which would give the company a value of $22.3 billion, and $4.9 billion in debt would have to be assumed. With the satellite company's stock currently trading at $29, AT&T would be paying a whopping 72% premium for the company, the highest premium for a tech take-over valued at more than $5 billion since 2000, according to Bloomberg.

Roger Kay, an analyst with Endpoint Technologies, said that "Dish would be a good option for AT&T [as] the carrier is spectrum-starved and it needs to ramp up fast, but the market is already primed for that scenario. AT&T won't find any bargains." Other analysts agree that AT&T needs to do something to stop Verizon from adding to the gap between it and AT&T. Recon Analytics analyst Roger Entner said in a telephone interview, "They [AT&T] are a year behind Verizon in the LTE race. Dish would undoubtedly be a good combination and it would solve a lot of AT&T’s problems."

The billion dollar question is whether AT&T would agree to pay a 72% premium to buy Dish. Company stockholders might object to paying $50 a share for a company currently trading under $30 a share. Still, things are getting desperate for the carrier as far as spectrum is concerned. That factor combined with the company's wish not to repeat the T-Mobile scenario means that AT&T executives may not mind paying so much for Dish Network as long as the deal succeeds.

source: Bloomberg via eWEEK.com

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