DISH to Tie up with Sprint

A recent Bloomberg report stated that Sprint Nextel Corp. (S - Analyst Report) is trying to forge a partnership with DISH Network Corp. (DISH - Analyst Report) that will enable DISH to offer its own mobile services using Sprint’s network. DISH, the second largest satellite TV operator, is waiting for the FCC nod to launch a nationwide high-speed wireless broadband network to offer mobile Internet, voice and video services to its customers using its newly acquired satellite airwaves from bankrupt DBSD North America Inc. and TerreStar Networks Inc.

Last month, FCC proposed a resolution, which will allow DISH to use its 40 MHz airwaves to deploy a nationwide wireless network. However, the regulatory body limits DISH’s power level on airwaves than what the company is currently holding. FCC argued that a reduction in DISH’s frequency level is required to avoid interference with an adjacent PCS H Block frequency. FCC will auction this PCS H Block frequency in 2013. Sprint, the third largest telecom operator in the U.S., is a major bidder for this frequency slot for its proposed expansion of 4G LTE network.

Although the final verdict of FCC is yet to come, the truncated deal will be financially unviable for DISH. The company has spent over $2.9 billion to purchase wireless spectrums and has altogether spent more than $4 billion to date to pursue its wireless broadband ambitions. At this juncture, Sprint itself offers a revenue sharing agreement with DISH.

Collaboration with the third largest telecom operator of the country will undoubtedly reduce huge capital expenditure, which DISH should bear to install a nationwide wireless network. As a matter of fact, DISH still keeps its decision open to either develop its own wireless network or collaborate with any existing wireless company, or just sell the airwaves for monetary gain.

On the flip side, an agreement with DISH will enable Sprint to access the former’s wireless spectrum, which is the most important and scarce element to deploy a nationwide super-fast LTE network. Nevertheless, this deal may need an approval from the Japanese wireless service provider Softbank, which has decided to purchase a majority stake in Sprint.

We reaffirm our long-term Neutral recommendation on both DISH and Sprint. Currently, both the companies enjoy a short-term Zacks #3 Rank (Hold) on their respective stocks.