Why Dish and T-Mobile Need Each Other, Exactly

Duo Has Some Catching Up to Do to Compete With the Likes of Verizon

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T-Mobile Chief Executive John Legere.
T-Mobile Chief Executive John Legere. Credit: Courtesy T-Mobile

The days of people receiving their TV, internet and wireless phone bills from different companies are looking numbered as merger talks between TV and telecom giants continue to emerge.

Less than a month after Verizon said that it would be buying AOL and Charter and Time Warner Cable announced plans to merge, with AT&T already seeking approval to buy DirecTV, T-Mobile U.S. is in talks to combine with Dish Network, according to a report in The Wall Street Journal. John Legere, chief executive at T-Mobile, would be the CEO of the combined company, while Dish CEO Charlie Ergen would be chairman.

It wouldn't be the first time Dish or T-Mobile have tried to combine with another major player: In fact, both companies have attempted mergers with Sprint, which now finds itself on the outside looking in.

Dish and T-Mobile appear to be getting together in order to keep pace with their respective competitors, which are expanding beyond selling only TV and internet or wireless access to selling everything. Verizon is ahead of the game -- it already offers TV, internet and wireless services -- to the point that it's now making moves to connect its customers across those services in order to sell ads, which was the primary motivation behind its bid for AOL and its ad-tech portfolio.

But a tie-up between Dish Network and T-Mobile, in some ways, would be playing catch-up for both companies.

Why Dish would want to merge with T-Mobile
TV companies can't just be TV companies any more. Comcast, Charter, Time Warner Cable, AT&T and Verizon -- each of those companies compete with Dish Network's TV service but also operate their own internet and, in the case of AT&T and Verizon, wireless services. They don't sell TV; they sell data and in bundles.

"Data is essentially the future of any telco, whether it's in the ground or in the air. Satellite TV providers miss the boat entirely unless they find some way to make it into it," said Forrester analyst James McQuivey.

Why T-Mobile would want to merge with Dish
As TV and internet services have become bundled, so too might mobile wireless services.

AT&T and Verizon have already prepared for a future when people buy their TV, internet and wireless service from one company, but T-Mobile has not. "Right now the money to be made in telco services is physical broadband: wires in the ground or in the air delivering connectivity to people's homes," Mr. McQuivey said. "But 10 years from now wireless broadband will be commonplace…. [At that point] you don't pay for a home or mobile data plan but one data plan. That means T-Mobile would get cut out of the business unless they have an offering. The way to do that will be to own spectrum. If you own spectrum, then that's a big chunk of airwaves you get broadband access to."

"Basically spectrum good, not having spectrum bad," he added. And Dish Network -- which has begun selling broadband service in addition to its satellite and internet-delivered TV services -- has a lot of spectrum.

Why Dish and T-Mobile need each other
Dish's main rival, DirecTV, is in the middle of being acquired by AT&T, one of T-Mobile's biggest rivals. That tie-up would level the playing field between AT&T and Verizon, giving both companies TV, internet and wireless businesses, but leave Dish and T-Mobile behind, both in their respective core categories and the battle to be the service that serves everyone.

Over the past couple years, Dish and T-Mobile have tried to assert themselves as new kinds of providers. While most TV providers try to bundle a bunch of channels together to get people to pay top dollar, for example, Dish went the other way in developing Sling TV, an internet-delivered, slimmed-down TV service for cord-cutters and people who don't care to pay for 200 channels they'll never watch. T-Mobile, meanwhile, has branded itself the un-carrier and rolled out programs for customers such as free music streaming. Together the un-bundler and un-carrier could use their reputations to try to corner the coveted millennial market.

"TV forever has been a moneymaker in and of itself, but no longer. It's a marketing hook used to sell broadband or wireless," Mr. McQuivey said.

Where this leaves Sprint
Sprint is the only one of the big four carriers in the U.S. not engaged in a bid now. It's possible Sprint's owner and Japanese telecom giant SoftBank has something up its sleeve; SoftBank hired Google Chief Business Officer Nikesh Arora last year to run a new internet and media division and recently made him heir apparent to SoftBank CEO Masayoshi Son, who serves as Sprint's chairman.

Any Dish and T-Mobile deal in discussions is also a long way from completion. Both Dish and T-Mobile have previously tried to merge with Sprint, but in each case the deals fell through. Both could find themselves back seeking a partner if the reported talks don't culminate in a merger -- and Sprint would be waiting.

Dish and Sprint teamed up last year to sell broadband internet service in Corpus Christi, Tex.

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