The rumors of a DISH-T-Mobile combination make a lot of sense. This is the comment I sent to several reporters last night:
This deal makes perfect sense. Given the increasing consolidation in the market, T-Mobile and DISH were in danger of becoming the lone single-service providers left in the market, with everyone else combining TV, broadband, and wireless. T-Mobile has a growing subscriber base and network but not enough spectrum, while DISH has lots of spectrum and no network, so their assets are very complementary. This merger would also go some way to overcoming some of T-Mobile’s lack of scale compared to its larger competitors, AT&T and Verizon.
Ina Fried had a more colorful formulation of the same basic idea in her piece over at Recode:
A deal between Dish and T-Mobile is akin to two people who hook up because they are the last ones left in the bar at closing time.
I think there’s a lot of logic to the deal, and it also fits with something John Legere said on T-Mobile’s Q1 earnings call about the synergies between wireless and pay TV:
I have always said on consolidation, it’s not a matter of if it’s when and how and now I’m going to add and who, because I think as we think ahead you need to think I still reiterate that in five years we will think it comical that we thought about the industry structure as the four major wireless carriers and as I said before and as Mike says many times as content and entertainment and social are moving to the internet and the internet is moving mobile, these industries, the adjacent industries are in the same game that we’re in. So whether it’s what you see Google doing. What you see the social media companies is doing or as you start to see cable players trying to move content Wi-Fi integration with mobile network et cetera, these are individual customers that are looking at both offer sets. So I think you need to think about the cable industry and players like us as not competitors but potential partners and alternatives for each other in the future.
So I think once you broaden the definition of things and I think in my mind the fixed wire and home broadband industry is the one that was of a concern there, but when you start to broaden the definition as I said of content and entertainment and video going to customers on fixed and mobile devices together and you start thinking of that industry is a far more broad set of potential partnerships integrations and mergers that the United States could be looking at and in that case I think you will see consolidation of a much broader set.
I’ve been somewhat skeptical of T-Mobile’s Un-Carrier moves, as I’ve written about quite a bit here in the past, but there’s no denying it’s disrupted the industry and created some useful innovation for consumers. Now imagine that same attitude applied to the pay TV market, and things could get really interesting.
Broadband is the elephant in the room
However, I think the elephant in the room here is broadband. Yes, T-Mobile’s LTE network is growing all the time, but wireless networks simply aren’t an efficient way to deliver broadband to the home, especially if users are expecting to be able to stream video services at increasingly high quality. Even with the combined spectrum of the two companies, there’s no way they can provide the 100-200GB of monthly bandwidth many consumers are going to be consuming. So, T-Mobile and DISH together can provide a useful bundle of mobile voice and broadband together with pay TV, but if consumers want to use Sling TV or any other over-the-top video services, that combination isn’t going to cut it, and neither mobile nor satellite broadband technology is going to solve that problem any time soon. So that’s my biggest question about the merger. I’m curious to see how the companies plan to address this if they end up announcing something.
Importantly, AT&T-DirecTV faces to some extent the same problem, but AT&T does have broadband in a significant part of the US, so this is a regional, rather than national problem. So it’s not quite the same.