Commentary | Enterprising Ergen Seeks To Go Boldly into Bundled Services

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Self-made billionaire Charlie Ergen, who became wealthy by using satellite technology to provide direct-to-home television service, could be the key to ensuring the industry is part of a long-term bundled service offering digital video, high-speed broadband and telephony to U.S. consumers anywhere they go.

Video is going mobile about as fast as anyone can imagine and Ergen is seeking to become a leader in the movement. Even if his bid fails to buy the third-largest U.S. cellular provider, Sprint Nextel Corp., as now seems likely, he has shown an aptitude for cobbling together companies that enhance the video experience for consumers under his empire and he now is looking to find a way to deliver second-to-none video to mobile users.

His plan does not seem to have received much notice, even though he shared his vision in an April 15 letter to Sprint Nextel’s board of directors to explain why the $25.5 billion buyout offer from his Dish Network Corp. was a “superior value” compared with one from Tokyo-based SoftBank Corp. He expressed interest in offering a fully integrated, nationwide bundle of in- and out-of-home video, broadband and voice services to meet a growing customer preference to be connected anyplace, anytime. 

But Ergen will need to reassess his short-term plans to become a bundled service provider. Sprint’s board of directors recently accepted a sweetened offer from SoftBank totaling $21.6 billion, including $16.6 billion in cash, for 78 percent ownership in the cellular phone company. Dish Network responded on June 18 that it was “impractical” to submit a revised proposal by the deadline imposed by Sprint, which the satellite TV provider claimed “prematurely” terminated its due diligence process and accepted “extreme deal protections” in a revised agreement with SoftBank.

Sprint also countered Ergen’s bid to buy roughly 49 percent of money-losing, high-speed Internet network Clearwire Corp. and the latter company’s valuable airwaves on June 20 by offering $5 per share to trump Dish Network’s $4.40 per share offer. Sprint currently owns slightly more than half of Clearwire shares and took a big step toward boosting its stake further on June 20 by gaining pledges from certain Clearwire stockholders that collectively own approximately 9 percent of Clearwire’s voting shares to support Sprint’s heightened offer.

Even before SoftBank increased its bid, that Japanese company won the backing of Sprint’s board of directors; the cellphone company’s second-largest investor, Paulson & Co.; and the shareholder-advisory firm Institutional Shareholder Services Inc. 

Dish Network now appears to have too many hurdles to clear to buy Sprint or obtain the minimum stake of 25 percent in Clearwire that Ergen seeks, but he should not be counted out from entering the bundled services arena one way or another.

Indeed, Ergen has a track record for growing businesses, negotiating tenaciously with video programmers to keep costs down, and rolling out technical advances to entice and to retain subscribers. Under Ergen’s leadership, Dish Network has become the third-largest pay-television provider in the United States, with more than 14 million subscribers, despite competing with incumbent cable monopolies.

In his April 15 letter, Ergen laid out plans to offer a national footprint, gain access to spectrum needed to provide advanced services and serve millions of homes that currently have inferior or no access to broadband. Ergen once told me that the only business in which he has lost money is broadband, and he expressed determination to find a way to profit.

The truth is that many others have lost money in the broadband business but Ergen has the financial resources to keep trying and to outlast poorly funded startups, if not acquire them. However, Ergen is not the only one with that dream.

SoftBank’s owner, Masayoshi Son, also is a billionaire who envisions growing by expanding internationally due to the limited opportunity to do so in his saturated wireless home market in Japan. Son is focused on buying Sprint, a distant third-place competitor with its bigger cellular industry rivals, Verizon Communications Inc. and AT&T, both of which are further along in introducing 4G, or fourth-generation, services.

In a speech June 14, SoftBank’s Son said, “I am determined to be No. 1 in the world very soon in my industry. You are lucky not to be my competitor.”

Son clearly is not lacking in confidence or bravado. He also acknowledged that an acquisition of the fourth-largest U.S. wireless company, T-Mobile, would be a “Plan B” target if he were unable to buy Sprint. Deutsche Telekom is eligible to sell its entire 74 percent stake in T-Mobile to a third party, such as SoftBank or Dish, so such a deal is a possibility for the company that loses in its bid to buy Sprint.

It may well be Ergen who is forced to consider buying T-Mobile as a way to enter the U.S. cellular market. If Dish Network becomes the losing bidder for Sprint, the satellite TV provider could consider making a deal to buy the 74 percent stake in T-Mobile US Inc. owned by Deutsche Telekom.

Ergen may well need to reassess his next move, if Sprint is sold to SoftBank and also stops Dish Network from gaining a significant stake in Clearwire. But his resourcefulness should not be underestimated. He is a poker-playing entrepreneur who started in the satellite industry as a seller of big satellite-receiving dishes to rural customers before he launched a successful satellite TV business that allowed users to receive programming with much-smaller 18-inch satellite dishes. 

Ergen wisely already is gaining experience in wireless broadband. He announced in May that Dish Network planned to develop a fixed wireless broadband service with NTELOS Holding Corp. in rural Virginia using a spectrum in the 2.5 gigahertz range. Broadband service speeds at the venture’s initial test sites are expected to be fast, ranging from 20 to more than 50 megabits per second.

Ergen has amassed a track record of making strategic acquisitions. His purchases at Dish Network include the assets of video entertainment company Blockbuster Inc. in a winning bid valued at $320 million on April 6, 2011. 

Ergen, who also is the chairman of EchoStar Communications, in 2007 acquired Sling Media and its technology that allows subscribers to watch and control their living room television shows at any time, from any location, using PCs, Macs, tablets and smartphones. He also orchestrated EchoStar’s 2011 purchase of Hughes Communications Inc. and its broadband satellite technologies and services.   

With Ergen’s background in satellites, he understands the value of the industry’s technology in serving rural subscribers cost effectively. Wireless phone companies in America are comparative novices at offering video services. The relatively poor reception that consumers receive on their smartphones is proof that someone with Ergen’s know-how and technology assets could be a game changer if he gains control of a cellular phone company and the spectrum needed to offer bundled services of his own. 

 

Paul Dykewicz is a seasoned journalist who has covered the development of satellite television, satellite radio, satellite broadband, hosted payloads and space situational awareness.