Success is far from guaranteed in Dish-Sprint merger

April 16, 2013, 3:10 PM UTC

FORTUNE — Why would a satellite TV operator want to buy a wireless network? Mainly, because the satellite TV business is terrible.

And even in that business, Dish Network (DISH), which on Monday announced a $25.5 billion bid for Sprint Nextel (S), is an also-ran to market leader DirecTV (DTV). The future of TV is in mobile (or anyway, that’s what Dish CEO Charles Ergen believes, along with a lot of other people). A wireless network is just what Ergen needs, and it’s what he’s spent the past several years and many billions of dollars trying to get.

But despite Ergen’s declarations on Monday that Sprint will represent the culmination of all his efforts, complications abound. There’s the fact that Sprint has already accepted a bid from Japan’s Softbank ($20 billion for 70% of the company). There’s the fact that Dish is racing to meet a deadline imposed by the Federal Communications Commission to deploy the huge swaths of wireless spectrum that the company owns. And there’s the fact that even if everything falls perfectly into place, it’s far from guaranteed that Ergen’s vision of enabling people to watch Dish-provided TV shows wherever they are will be all that great a business in the long run.

At first, assuming the deal goes through, the bundling of TV, Internet, and voice services won’t be much more than a marketing scheme, albeit a pretty good one for both Dish and its customers. Dish gets people to sign up for several different services all at once, making it less likely that they’ll drop all of them and go elsewhere. And customers get convenience.

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But simply bundling services isn’t the same as enabling people to watch Mad Men on their smartphones, wherever they might be, beamed at them via Dish/Sprint’s network at no extra cost. That’s the company’s ultimate goal. During his rather effusive presentation during a conference call on Monday, Ergen summed up his vision: “While the cable industry does a really good job in your home, and the current wireless industry does a really good job outside your home, there’s really no one company on a national scale that puts it all together. The new Dish-Sprint will do that.” He said such a scenario will be possible in “two or three years.”

Before then, Ergen must defeat Softbank in what could easily become a bidding war (though a couple of observers have suggested that Softbank and Dish might team up on Sprint in some sort of joint venture). The offer as it stands would already burden Dish with a gigantic debt load (somewhere between $38 billion and $45 billion depending on which analyst’s estimate you believe). The bid already represents a 13% premium over Softbank’s offer. Some analysts have said that, nevertheless, the Softbank deal would be the better one for Sprint, in large part because of the natural synergies between the two wireless carriers, and also because Softbank is a much larger company with more resources.

And even if the deal goes through, Ergen will have to rush to meet an FCC deadline imposed in December when the regulator gave the company permission to convert much of its wireless spectrum — which had been designated for satellite phones — to be used for terrestrial wireless service. The company has seven years to deploy the spectrum over 70% of the geography it covers. Since Dish owns no wireless network, it must either build or buy one. But there’s more to it than that, as Christopher Mims and Gina Chon point out at Quartz:

Even if Dish could acquire Sprint or some other carrier tomorrow, it would have to retrofit most of that carrier’s cell phone towers to broadcast and transmit in a new spectrum range — known as S-band — a portion of which was once was used for satellite phones. That’s not to mention other spectrum Dish owns, which has been approved for use as the AWS-4 standard — another Dish-only exclusive.

The FCC deadline explains the fevered attempts by the company in recent years to acquire a wireless carrier. Building its own network would be impossible for reasons of both time and cost.

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As for watching Dish-beamed episodes of Mad Men at the airport, it’s possible that it will take only a few years. But it’s hard to know exactly how the system would work, or whether the economics would work for Dish. It would likely do well in rural areas, where consumers can’t get cable or DSL service (Ergen means to provide antennas to customers for wireless broadband). And over time, if the prognostications about the growth of mobile video prove correct, it could be downright lucrative. During the conference call, Ergen referred to smartphones and tablets as “miniature high-definition televisions that you can take with you everywhere.”

The Dish-owned Slingbox service will likely be at the center of such a scheme. Slingbox enables Dish customers to watch their subscribed satellite channels through the Internet. With Sprint, they could eventually watch them through their wireless connections. The company could exempt Slingbox video from data caps for all consumers who opt for the bundle. But with mobile video still really in its nascent stages, it’s far from clear whether the revenue generated by such a service would be enough to pay off Dish’s debt and also earn healthy profits.

Verizon (VZ) and AT&T (T) dominate the wireless market, but both have only relatively paltry TV offerings (FIOS and U Verse, respectively). In the wireless market, Sprint is pretty far back at No. 3, with about 49 million subscribers. But Dish, by adding Sprint to the spectrum it already owns, would make a huge leap in the spectrum market. The deal would “create a carrier whose spectrum depth (would) dwarf its rivals in the market,” wrote Dexter Thillen, an analyst with IHS Global Insight, in a note to investors Monday.

The question is whether Ergen, by adding his approximately 14 million subscribers to the nearly 50 million he would acquire with Sprint, can make TV work for him again, as he did when he first assaulted the cable industry in the 1980s.

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