The Wild Kingdom of Media Moguls was once as vibrant as the Serengeti, with colorful predators like Ted Turner, John Malone and Rupert Murdoch hunting the dusted plains for wounded or confused prey. We watched voyeuristically as they wheeled and dealed each other into Darwinistic knots—and somehow they all ended up richer. During those halcyon days, one of those moguls—DISH/Echostar chief Charlie Ergen—largely sat out of this dealmaking feast, choosing instead to organically grow his satellite company into a 14-million subscriber behemoth that now stands as the 3rd largest multichannel video provider in the U.S. Ergen wants to be Number One. And now that he’s offered $25.5 billion smackers for Sprint (and potentially its Clearwire venture ironically built with capital from DISH’s cable competitors), the cable industry may want to take a moment to ponder the implications. They could be huge.
Ergen possesses a chicken-fried personality that folks love to ridicule, but we know one thing: He ain’t dumb. And you can bet that Ergen—a guy so cheap that he famously asks execs on business trips to share hotel rooms to save money—wouldn’t part with $25.5 billion to buy Sprint unless he thinks he’ll make it back and more. In fact, he’s already predicting $11 billion in potential cost savings and $24 billion in “new opportunities synergies,” whatever that means. You don’t have to believe his numbers, though. He believes them. And even if he doesn’t, he still knows that DISH needs a two-way pipe to compete.
It’s interesting: A few years ago, cable wouldn’t have worried about a satcaster owning terrestrial wireless spectrum. But the rollout of LTE networks (not to mention Clearwire’s WiMAX) is fast changing the game. LTE boasts speeds that rival some wired broadband systems, and while scalability as more people buy LTE-capable devices will certainly be a challenge, engineers are hard at work to improve traffic load problems now vexing the unicast video model. Eventually, LTE will have enough juice to reach relative video parity with WiFi and wired broadband. And that’s when things will get extremely interesting for Charlie Ergen.
After all, one of satellite’s big Achilles’ heels is that it owns no broadband infrastructure. Marketing deals with broadband providers work okay, but there’s nothing like owning the pipe—or in this case, the spectrum. In the old days, this would have merely been a way to compete with cable and telco ops. But in the age of multiplatform and OTT, it’s far more than that. A successful play for Sprint would give Ergen access to LTE infrastructure that could enable him to offer converged TV services. And he alluded to as much during the press conference Mon. No wired broadband required. Who knows what kind of program packages he could dream up, with access not only to one-way satellite spectrum but also 2-way, hyper-fast LTE spectrum. It’s not a panacea, and he’ll face many infrastructure challenges as toys with new models and tries to make unicast work on a grand scale (old fashioned broadcast QAM is much more efficient). He’ll also face plenty of legal and rights challenges from entrenched programmers. But Ergen tends to take big risks, as we all know from his continued and unabashed cheerleading for the Hopper, which skips over those precious ads and was part of the reason The Hollywood Reporter just dubbed him “the most hated man in Hollywood.” Charlie doesn’t care. In fact, he downright enjoys upsetting the apple cart.
Of course, Ergen’s play for Sprint is far from a done deal. Some analysts expect original Sprint suitor Softbank to counter with $7.50 per share or even more. As Sprint gets bid up, frugal Ergen may back off. But don’t count on it. If he does end up with Sprint, nothing radical will happen for a while. He’ll spend the next two or three years bundling services and cross-promoting them to acquire new customers. That’s partly out of necessity because Sprint’s LTE builout is well behind Verizon and AT&T and has yet to reach many major markets. But know this: Ergen has no problem biding his time, testing the network, getting ready. Will he launch some kind of wireless OTT service? A virtual MSO of some sort? A new convergence device melding satellite broadband and LTE unicast, and hatched out of EchoStar’s labs? Who knows…
Yes, cable operators are more than capable of beating Charlie at his own game—and the odds are in cable’s favor because of its superior infrastructure and increasingly consolidated media power. In fact, Comcast—with its NBCU ownership and massive industry pull—could very well launch a virtual MSO or try out a radically new programming model before Ergen. But then again, DISH likes to play the part of the rebel. And Charlie likes to hide in the bush. Waiting. Hope you’re not passing by when he’s ready to pounce.
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