January 10, 2013
Charlie Ergen, chairman of Dish Network Corp., is in a familiar position: He can win even by losing. Mr. Ergen's attempt to snatch wireless provider Clearwire Corp. out of the hands of its current merger partner, Sprint Nextel Corp., is just his latest move in a long chess match. The endgame: to get access to the spectrum and network assets needed to deliver wireless service and even video over the air.
At first glance, Dish's proposal to buy Clearwire is a head-scratcher. Sprint already owns half of the company and has a tangle of contractual rights that pose steep obstacles for any outsider trying to do a deal. But people close to Mr. Ergen said his main interest is rights to some of the airwaves, or spectrum, controlled by Clearwire. Even if Sprint succeeds in acquiring Clearwire, Mr. Ergen could benefit if his unsolicited bid pushes Clearwire to sell him some of its spectrum or leads Sprint to bring him into a network-sharing partnership. "There's different layers to the onion here," Joe Clayton, chief executive of Dish, said on Wednesday in an interview at the Consumer Electronics Show in Las Vegas. "We're trying to do our best to add to our portfolio of assets to make it easier to enter the wireless business."
On Wednesday, both sides were digging in as it became clear that a fight between two of the world's most unpredictable telecom moguls loomed. On one side is Mr. Ergen, the famously hard-to-read satellite pioneer who is trying to enter the wireless industry as changing technology and consumer tastes endanger his satellite-TV business. On the other side is Masayoshi Son, the chief executive of Softbank Corp. of Japan, which is spending $20 billion to buy a majority stake in Sprint and has sought to make sure that Sprint has control of Clearwire's spectrum. Clearwire has formed a special committee of its board to weigh its options. Dish's proposal values Clearwire at $3.30 a share, topping Sprint's offer by about 11%. "We'll actively work with the special committee to see if we can provide a superior offer to their shareholders," Mr. Clayton said.
Sprint has called Dish's offer "illusory" and insisted it won't let it happen. But the company could have to consider raising its offer or cutting a spectrum deal with Dish to keep Mr. Ergen at bay and appease unhappy minority shareholders, a majority of whom need to approve the merger with Sprint for it to go through. Clearwire's shares closed Wednesday at $3.13, 5% above the price Sprint has agreed to pay, indicating shareholders expect they'll get a higher price one way or another. Crest Financial Ltd., which owns 8.3% of Clearwire's shares, has sued to block Sprint's acquisition. A hearing in that case is scheduled for Thursday in Delaware Chancery Court.
A Sprint spokesman said the carrier isn't considering raising its price and still believes its offer is superior to Dish's proposal. Its bid values the half of Clearwire that it doesn't own at $2.2 billion. Under Sprint's agreement with Softbank, an action such as submitting a new bid for Clearwire would require Softbank's approval. Dish's offer is preliminary and faces numerous hurdles. But by expressing an interest in buying all Clearwire shares outstanding at a slightly higher price than what Sprint agreed to pay, Mr. Ergen has given Clearwire's board an opening to come to the negotiating table despite its agreement with Sprint. Because Dish's offer was characterized by Clearwire as "an unsolicited, non-binding proposal," any final agreement between Dish and Clearwire could look very different from what Clearwire described on Tuesday.
Clearwire is under pressure to act quickly. Part of the Sprint deal involved an injection of needed cash, a loan Clearwire has put on hold while it sorts out the Dish offer. Mr. Ergen also needs to get moving after winning approval from regulators in December to convert some of his satellite spectrum so that it can be used by cellphones. The Federal Communications Commission gave him seven years to build out 70% of his network, and he is starting from scratch unless he can work with an existing carrier. This past fall, Sprint's move to buy Clearwire and T-Mobile USA's deal to merge with MetroPCS Communications Inc. left Mr. Ergen without an obvious partner. The Dish chairman has complained in recent conference calls that the consolidation of the industry has made it more difficult to enter the business.
Clearwire's spectrum is attractive to Mr. Ergen, because the high frequency is well-suited to delivering high-bandwidth services like video over the air, people close to him say. Clearwire already owns infrastructure, in the form of transmitters on cellphone towers, that could help Mr. Ergen get service up and running quickly. Mr. Ergen's long-term strategy, according to people close to him, is to become a broadband provider-not only to diversify from the maturing pay-TV business but also to pave the way to new Internet video business models.
There's an audience of 18 to 35-year-olds who want only two dozen channels, and it is a market Dish isn't getting to now, Mr. Clayton said. Over time, Dish wants to develop an Internet streaming offering for that market, and it believes content companies-which have thus far balked-"will come around," he said. Already, Dish has invested in Web-TV player Roku Inc., The Wall Street Journal has previously reported. And it has a streaming service of a suite of international channels over Roku that Dish executives have said is targeted toward viewers in urban areas who can't easily receive satellite signals. Michael Dugan, the CEO of Dish's sibling company EchoStar Corp. and longtime company veteran, gave an overarching view of how wireless and satellite fit together in Dish's grand plan to expand into Internet video. "At some point, the cheapest infrastructure to deliver the highest number of bits to the largest number of people is all going to be wireless," he said in an interview at the Consumer Electronics Show on Tuesday. Wall Street Journal
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