‘Desperate’ AT&T May Seek to Buy Dish After Deal Collapses, Stifel Says

By Alex Sherman - Dec 21, 2011 4:41 AM GMT+0700

AT&T Inc. (T) may seek to acquire Dish Network Corp., the second-largest U.S. satellite-TV company, to gain wireless spectrum after failing to purchase T-Mobile USA and its airwaves, Stifel Nicolaus & Co. said.

The second-largest U.S. mobile carrier is “desperate for spectrum” after regulatory opposition forced it to abandon the $39 billion T-Mobile bid, said Christopher King, a Stifel Nicolaus analyst in Baltimore. AT&T had to give up spectrum as part of a breakup fee from the deal’s collapse.

Dish bought bankrupt companies DBSD North America Inc. and TerreStar Networks Inc. this year for their spectrum licenses. The Englewood, Colorado-based company may be AT&T’s best chance at enhancing its wireless network, and a deal would probably be allowed by regulators, King said. Dish (DISH) rose 9.2 percent, the most since May, to $27.46 at the New York close. The shares have gained 40 percent this year. AT&T rose 1.3 percent to $29.12.

“Dish and AT&T aren’t direct competitors, and at the end of the day, the government wants to see spectrum used,” King said in an interview. “It’s highly unlikely regulators would block two AT&T deals in row.”

Ashley Zandy, an AT&T spokeswoman, and Marc Lumpkin, a Dish spokesman, declined to comment.

Growing Demand

Spectrum is a term used for airwaves, licensed by the government, that carry wireless voice and data signals. Governments often sell unused or repurposed frequencies to the highest bidder, and companies also trade them. Demand is increasing as more people buy smartphones and tablets and use them to watch video and browse the Web.

Verizon Wireless, the No. 1 mobile carrier, is trying to extend its lead over Dallas-based AT&T in so-called fourth- generation spectrum after striking deals with cable companies this month. Including those acquisitions, Verizon will have 56 percent more 4G spectrum than AT&T in the top 10 markets and 46 percent more in the top 100, giving it a “meaningful competitive advantage,” John Hodulik, a UBS AG analyst, said in a research note.

A Dish-AT&T lockup could mirror the partnership between Verizon Wireless and cable companies, King said. Verizon said this month it would buy $3.6 billion of spectrum from Comcast Corp. (CMCSA), Time Warner Cable Inc. and Bright House Networks LLC. Cox Communications Inc. also sold Verizon $315 million of spectrum.

Verizon’s Cable Deals

Comcast, Time Warner Cable (TWC) and Cox, the three largest U.S. cable companies, will market and eventually sell Verizon Wireless service, enabling them to offer customers mobile voice and data in addition to home phone, Internet and TV service.

Verizon Wireless is being investigated by the U.S. Justice Department over whether the proposed deals might constitute a restraint of trade, a person familiar with the matter said.

If AT&T acquired Dish, it could continue to operate its satellite-TV business, gaining about 14 million customers and saving on programming costs, King said. AT&T already pays for cable and broadcast content through its TV service, U-verse.

Adding Dish could give AT&T more leverage in negotiations with cable networks, said Paul Sweeney, an analyst with Bloomberg Industries. AT&T’s video customer additions have slumped in consecutive quarters.

Lower Ambitions

“AT&T has scaled back its ambitions in terms of its video offerings,” Sweeney said. “So if you can’t build it, perhaps buy it.”

The Federal Communications Commission still must approve Dish’s spectrum acquisitions and give Dish a waiver to offer mobile high-speed Internet service to its customers. The FCC may have concerns with Dish acquiring spectrum licenses to flip them for a profit, King said, although he didn’t think it would be a deal-breaker.

Dish Chief Executive Officer Joseph Clayton said this month that his company wanted to be a wireless competitor in an industry dominated by AT&T and Verizon. Chairman Charlie Ergen said in November that Dish was interested in linking up with a wireless company or building a network on its own to create more competition in the industry.

It’s in Ergen’s best interest to talk about competing with AT&T if he wants to sell, King said.

“This is a perfect opportunity for Charlie to get out,” King said. “He’s talking about building a wireless network or being a competitor to get a better deal from AT&T.”

AT&T has been rumored “for years” to be a potential acquirer of Dish and DirecTV (DTV), the largest U.S. satellite-TV distributor, according to Sweeney. Ergen also tried to merge Dish with DirecTV in 2002. The deal was dropped after U.S. regulators opposed the combination.

Ergen said in November that a merger with DirecTV would be “problematic” if AT&T’s bid for T-Mobile didn’t go through.

To contact the reporter on this story: Alex Sherman in New York at asherman6@bloomberg.net.

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net