DISH Network Corp (NASDAQ:DISH) has been making some headlines recently. The satellite TV provider submitted a bid to acquire Sprint Nextel Corporation (NYSE:S) back in April, and on Wednesday, it offered to purchase Clearwire Corporation (NASDAQ:CLWR).
Why is DISH Network Corp (NASDAQ:DISH) trying to acquire a major wireless provider? Could it have anything to do with cord cutting?
DISH Network’s recent moves
Japanese firm SoftBank made an offer to buy 70% of Sprint Nextel Corporation (NYSE:S) back in October for $7.30 per share. In April, DISH Network Corp (NASDAQ:DISH) made a rival bid, offering only $4.76 in cash, but about $2.24 in DISH stock.
Yet, it looks like SoftBank will win out. The company said it expected to close its merger with Sprint in July, and the deal received security clearance on Wednesday (DISH had been waging a campaign to nix the deal on the grounds of national security).
After SoftBank made its offer for Sprint Nextel Corporation (NYSE:S), the wireless network provider moved to take control of Clearwire Corporation (NASDAQ:CLWR). Owning Clearwire would allow Sprint to improve its US wireless network — a network that offers less 4G Internet access than its major rivals Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T).
It’s possible that DISH Network Corp (NASDAQ:DISH) is attempting to use Clearwire Corporation (NASDAQ:CLWR) as a pawn to take control of Sprint. That’s what JPMorgan analyst Philip Cusick believes (according to The Wall Street Journal), noting that DISH’s control of Clearwire would make Sprint less attractive to SoftBank. Others disagree, believing that DISH would be content to take Clearwire and walk away from Sprint.
Regardless of whatever games DISH Network Corp (NASDAQ:DISH) may or may not be attempting to play, one thing is clear: the company is definitely trying to break into the wireless business. But why?
The growing trend of cord cutting
Commentators have been talking about cord cutting as a growing trend for quite some time. To date, it has yet to happen to any meaningful extent, although there is some evidence that it’s beginning to take place.
As Internet alternatives to cable (like Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN) Prime) ramp up their content spending and roll out great, original shows, more users might be inclined to cut the cord and ditch their cable or satellite provider once and for all.
By breaking into wireless service, DISH Network Corp (NASDAQ:DISH) can prevent the eventual extinction of its business model. Other providers, like Comcast, are somewhat insulated from this trend, as they — generally speaking — control access to the Internet. (Comcast, through NBC, also owns a lot of content.)
But DISH lacks these advantages. Nearly the entire value of the company is based on its approximately 14 million paid-TV subscribers. If cord cutting drove a meaningful amount of DISH’s subscribers to cancel their service, the entire company would be in danger.
DISH is aware of this, listing it as its second risk factor on its most recent 10K:
Competition from digital media companies that provide or facilitate the delivery of video content via the Internet may reduce our gross new subscriber activations and may cause our subscribers to purchase fewer services from us or to cancel our services altogether, resulting in less revenue to us.
