T-Mobile (NASDAQ:TMUS) spent months attempting to merge with rival Sprint (NYSE:S) in order to have the scale required to compete with industry leaders Verizon (NYSE:VZ) and AT&T (NYSE:T). That move was scuttled by suggestions from federal regulators that they would not approve any deals that shrunk the number of wireless carriers from four to three.
The failure of that deal did not change T-Mobile's need for a partner to help share the heavy infrastructure costs required to keep up with the big boys. What it did do was take a logical combination off the board, leaving the "Un-Carrier" without a date to the prom and, really, without many options at all.
One viable dance partner, however, has emerged as DISH Network (NASDAQ:DISH) also finds itself in need of scale as its satellite TV rival DirecTV (NYSE:DTV.DL) attempts to gain regulatory approval for its proposed merger with AT&T. DISH also owns billions of dollars worth of spectrum, which is something T-Mobile needs.
That was not lost on T-Mobile CEO John Legere, who addressed the topic during the company's fourth-quarter earnings conference call February 19.
"We look at their spectrum portfolio, and video, as a fascinating idea to consider," Legere said, addressing the long-standing rumors that Dish may be interested in buying or partnering with T-Mobile. "I think Dish offers a great opportunity for the country and possibly T-Mobile."
Why this deal makes sense
DISH purchased a little over $13 billion worth of spectrum licenses during the recently completed spectrum auction run by the Federal Communications Commission. This joins significant previous spectrum purchases in the DISH portfolio.
Owning this much spectrum makes it possible for DISH to roll out its own wireless phone service, but doing that would require building a costly infrastructure from scratch. T-Mobile has that infrastructure, but its spectrum holdings keep its network behind those of AT&T and Verizon.
These are two companies that have something the other needs, making a merger or a strategic partnership logical.
It's more than just spectrum and infrastructure
T-Mobile's 55 million customers should be attractive to DISH, which has nearly 14 million paying customers of its own. Clearly, the two companies could cross-market their services, and anecdotally, the two serve audiences that might be compatible.
Both DISH and T-Mobile are usually the lowest-price major company option in their respective fields. In theory, that means customers of each are likely value-driven, and an inexpensive wireless/satellite TV bundle offered by the two companies jointly would have great appeal to users of both brands.
DISH also has its Sling TV purely digital television for cord-cutters, while T-Mobile has its low-cost pre-paid Metro PCS brands. A combined DISH/T-Mobile would be able to offer varying packages at low prices from well-known, well-trusted (at least by the standard of their industries) brands.
Will it happen?
Legere seems open to the prospects.
"We like what they're doing," Legere said, according to CNET. "It makes sense to have a discussion."
The CEO did caution, however, that rumors of various partnerships are all "spreadsheet" oriented. According to the technology site, he said the proof will be in the execution of integrating the networks and services and making sure customer needs are met.
It's early to suggest that a T-Mobile/DISH deal will happen, but it's a logical move since each company has things that make the other stronger. Legere has expressed an interest in at least having a discussion, while DISH Chairman Charlie Ergen, who plans to retake the CEO title at his company after its current holder, Joseph Clayton, retires in March, has made similar comments.
Ergen has told Deutsche Telekom AG (NASDAQOTH:DTEGF), T-Mobile's controlling shareholder, that it would be interested in purchasing the U.S.'s fourth-largest wireless service provider, according to Bloomberg.
Together -- either as partners or as a merged company -- T-Mobile and DISH are stronger together. DISH needs to use some of the wireless spectrum it already owns by 2017, or it loses it. T-Mobile knows it needs more spectrum and scale to compete with Verizon and AT&T.
A deal might not happen, but it makes so much sense on the surface that it would be silly for the two companies to not at least discuss it.
Daniel Kline owns shares of Apple. The Motley Fool recommends Apple and Verizon Communications. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.