Dish Said to Discuss T-Mobile Deal With Deutsche Telekom

Charlie Ergen
Charlie Ergen, chairman and co-founder of Dish Network Corp. Photographer: Andrew Harrer/Bloomberg

Dish Network Corp.’s Charlie Ergen recently contacted Deutsche Telekom AG to say he is interested in a future acquisition of its T-Mobile US Inc. unit, people with knowledge of the matter said.

Ergen, who made the approach after Deutsche Telekom’s talks to combine T-Mobile with Sprint Corp. broke down last month, hasn’t made any formal offer, said the people, who asked not to be identified because the conversations were private. He has told Deutsche Telekom -- which also received an offer from France’s Iliad SA -- that he’d be open to the idea in the coming months, they said.

Dish, the second-largest U.S. satellite-TV provider, has told Deutsche Telekom, which owns about two-thirds of T-Mobile, that it may be interested in a deal after a November auction for wireless airwaves is completed, said the people. Dish hasn’t formally hired a bank to advise it on a T-Mobile takeover, and it’s still unclear if the Englewood, Colorado-based company is serious about a deal, the people said.

The conversation isn’t out of the ordinary for Ergen, the co-founder of Dish, who also controls the company. He has spoken with Deutsche Telekom for several years about this deal, two people said. The most recent overtures may have been motivated by the end of talks with Sprint, as well as Ergen’s desire to persuade Deutsche Telekom not to reach an agreement with Iliad before the end of the year, the people said.

Deutsche Telekom has rejected Iliad’s bid of about $15 billion for a 56.6 percent stake in T-Mobile, and Iliad is seeking a partner to help it make a higher offer, people familiar with the matter have said.

Dish Preference

Bob Toevs, a spokesman for Dish, and Anne Marshall, a spokeswoman for T-Mobile, declined to comment.

Deutsche Telekom spokesman Philipp Schindera declined to comment on talks with Dish, other than to say the company is under no pressure to sell T-Mobile.

For Deutsche Telekom, waiting for Dish may be the smartest option, one of the people said. Deutsche Telekom has seen the value of T-Mobile rise about 24 percent in the last year as it leads the industry on lowering prices and lures more customers. Chief Executive Officer John Legere predicted that T-Mobile will overtake Sprint in total customers by the end of the year.

Deutsche Telekom, based in Bonn, views Dish as a better acquirer than Sprint because it wouldn’t rankle antitrust regulators by reducing the U.S. wireless market to three competitors from four, the person said. Dish also may have more firepower to bid than Iliad, which has been talking to private-equity firms about teaming up on an offer, the person said.

Spectrum Auction

Dish’s focus for now is on the November spectrum auction, which is “going to tell us kind of where we stand on a baseline value as a company,” Ergen said on an Aug. 6 earnings call. It will provide a “reset” for the industry by reflecting the value of airwaves already held by companies such as Dish, he said.

The Federal Communications Commission is seeking bidders for AWS-3 spectrum, airwaves that carriers can use to help add capacity to networks and feed customer demand for more streaming music and online videos. The auction is to be the largest since a 2008 sale drew bids totaling more than $19 billion.

On last month’s call, Ergen said the odds of a deal with any company are low before the auction takes place.

A T-Mobile acquisition would give Dish a national wireless network over which it could deliver mobile video -- part of Ergen’s plan to challenge conventional cable television by streaming programs to a variety of devices. The deal also gives Deutsche Telekom a long-sought exit from the U.S. market, and provides T-Mobile with a domestic partner to help compete against the two largest carriers, Verizon Communications Inc. and AT&T Inc.

Sprint Deal

T-Mobile and Sprint ended talks last month to join the third- and fourth-largest U.S. wireless carriers after facing opposition from regulators and failing to agree on terms, people familiar with the matter said.

After then rejecting Iliad’s $33-a-share bid for T-Mobile, Deutsche Telekom indicated it would be willing to negotiate a sale if a bid valued T-Mobile at $35 to $40 a share, a person with knowledge of the matter said.

T-Mobile rose 1.4 percent to $30.67 at the close in New York yesterday. Dish gained 0.9 percent to $66.44.

Masayoshi Son, the chairman of both SoftBank Corp. and Sprint, is still interested in pursuing a deal for T-Mobile in 18 to 24 months, one of the people said.

Ergen had remained on the sidelines during the latest round of deal discussions, avoiding a bidding war and waiting to pounce if the right opportunity came along. Last month, after Sprint and T-Mobile ended talks, Ergen said the move increased Dish’s “optionality,” and replied “maybe” when asked about Dish’s interest in buying T-Mobile. He also lauded Sprint, which he said has a better network and has potential to expand.

Inflated Valuation

While Dish may spend money acquiring more airwaves, the auction may also help set a higher market value for the spectrum it already owns, according to Ergen. That could translate into a higher stock price and currency for deals, as well as an increased asset value to borrow against.

Based on the value of recent spectrum purchases, Dish already holds an estimated $26 billion in airwaves, according to Bloomberg Intelligence.

After reaching a content distribution agreement with Walt Disney Co. in March, Dish has been poised to offer the first package of TV over the Internet. Through online video, Dish can reach beyond its satellite audience and bring live TV at a cheaper cost to more people.

Ergen unsuccessfully bid against SoftBank for Sprint last year after years of publicly discussing his desire to acquire or partner with an existing U.S. wireless company.

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