Does a Dish, T-Mobile Deal Really Change Anything?

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A deal is in the works between Dish Network Corp. (NASDAQ: DISH) and T-Mobile US Inc. (NYSE: TMUS) that would create what would be the third-largest pay-TV/telecommunications company in the United States. Does such a deal make sense? Yes, but that was an easy question.

The Wall Street Journal has cited a source as saying that Dish Chairman and CEO Charlie Ergen would be the combined firm’s chairman and T-Mobile CEO John Legere would become the chief executive. That, too, was an easy one — the harder questions are still to be discussed.

Such as, who pays how much to whom? Dish Network’s market cap is about $32.8 billion as of Wednesday’s close. T-Mobile’s is about $31.1 billion. That still needs to be sorted out, but it is likely that Dish will have to pay something to T-Mobile.

In order to survive today’s brave new world, the two companies need to find partners fast. The AT&T Inc. (NYSE: T) $49 billion acquisition of Dish rival DirecTV (NASDAQ: DTV) is on a short path to closing, and recent offers totaling about $67 billion from Charter Communications Inc. (NASDAQ: CHTR) for both Time Warner Cable Inc. (NYSE: TWC) and Bright House Networks have settled the question of who will hold the top two spots in the pay-TV business.

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Left out of the big deals are Verizon Communications Inc. (NYSE: VZ) the nation’s largest telecom company, and Sprint Corp. (NYSE: S) the country’s fourth largest telecom company. Verizon recently announced that it will pay $4.4 billion for AOL Inc. (NYSE: AOL), but that’s not a deal on the same scale as the other telecom/pay-TV tie-ups. And Sprint is left with not much.

There is little question as well about what’s happening here. Mobile and streaming demand are growing while cable/satellite pay-TV is getting squeezed. The pay-TV guys bring content to the carriers and the carriers have the digital pipes to connect the content to consumers. In order to make deals with the companies like Disney and the other movie and TV studios that produce content, the carriers need to have paying customers and cable/satellite companies provide them. It is all about leverage — if a company wants to get into the game, size will matter.

When Comcast Corp. (NASDAQ: CMCSA) failed to complete its proposed deal with Time Warner Cable, that left the door open for a few big deals among the other players. Comcast remains a formidable force in the pay-TV/broadband/content space, and that is why AT&T made the offer it did for DirecTV, and that is why Dish and T-Mobile have to strike a deal.

Dish and T-Mobile are both running hard to stay in the same place. But if either wants to survive in the longer term, they have no choice.

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T-Mobile shares traded up about 7% to $40.99 in Thursday’s premarket session, above the current 52-week range of $24.26 to $39.12.

Dish traded up nearly 5%, at $74.25 in a 52-week range of $56.17 to $80.75.