With so much of consolidation taking place in the U.S. wireless industry, the competition is expected to get stiffer. In my latest report on this industry I talked about AT&T’s (T, Financial) interest in acquiring DirecTV (DTV, Financial). And now it’s the top U.S. wireless carrier, Verizon (VZ, Financial), which is interested in the wireless spectrum of Dish Network (DISH, Financial), the satellite-TV company. Companies are increasingly attempting to widen their horizon and diversify into new business segments. So, what’s the trigger for Verizon to be interested in Dish’s spectrum and should Dish part with it? Let’s dig deep.
Verizon Seeks To Grow By Developing Its Network
Verizon operates in an industry characterized by cut throat competition. Because of this the company constantly needs to be updated. The U.S. telecom major is looking at expanding its 4G LTE network by acquiring additional spectrum and this is why the company is interested in Dish’s asset. With more bandwidth, Verizon will be able to offer faster and better user experience. According to industry experts, with Dish’s spectrum under its belt, Verizon’s video streaming services in the urban areas will improve drastically.
While acquiring additional spectrum one point that a company needs to keep in mind is the compatibility with its existing spectrum. This is another reason why Verizon is interested in spectrum owned by Dish. Dish’s spectrum complements that of the telecom major’s. The Big Red is not interested in buying Dish Network since it feels acquiring a satellite company makes little sense at the moment. However, this in no way implies the spectrum owned by Dish is not lucrative.
The New York based teleco has strong plans to develop its business by acquiring additional spectrum. However, there are limitations on the company in participating in FCC organized auction and then bid for spectrum. So, if the company can acquire additional spectrum through inorganic growth, it can afford to have limited participation in the incentive spectrum auction to be held next year.
Dish Needs To Hold On To The Spectrum To Ensure Growth
While some analysts are looking at the proposal in a positive sense and feel this would result in influx of cash in the company, there are many who feel Dish parting with its spectrum would spell disaster for the company. Dish is a prominent name in the U.S. pay-TV market. However, the market is gradually getting saturated and thus the company sees little scope for growth in the future and this is why the company needs Plan B.
Dish wants to diversify and has been looking at gathering spectrum for some time now. The company already owns spectrum which analysts estimate to be worth around $17 billion. If Dish parts with the airwaves, this would mean the end of its dream to become a prominent player in the wireless space. The company will lose its major growth driver and be stuck in the saturated U.S. pay-TV market. Instead, I believe the company should look for partnerships and try and develop its capabilities in the wireless space.
Departing Thoughts
Both the companies have their own share of reasons to acquire or to hold on to the spectrum. If I have to weigh both the arguments, I would say it’s more important for Dish to keep the spectrum with itself. Dish’s spectrum is the most attractive asset that the company possesses to entice a telecom player for partnership. Parting with the prized asset could hurt its future. As for Verizon, even if it’s not able to buy the airwaves from Dish, it will continue to perform well and it can look at other opportunities to expand its bandwidth. What remains to be seen is how the FCC responds to the situation. Let’s keep a close watch on the matter and see how things unfold.
