Satellite television provider Dish Network today offered $25.5 billion for Sprint Nextel Corp., in an unsolicited bid that surprised the wireless industry.

The bid, announced by CEO Charles Ergen, is $5.5 billion higher than that offered by Japan’s Softbank, which already had a pending deal to take a 70 percent stake in the third largest wireless carrier.

The bidding may not yet be over if Softbank decides to counter with a higher offer or if other bidders emerge in the coming weeks.

Ergen has signaled his interest in entering wireless markets to compensate for slowing earnings in the satellite television business.

“He is trying to transform his own business,” Vijay Jayant, an analyst at International Strategy & Investment Group in New York told Bloomberg News. “He’s trying to reinvent himself, moving from satellite to wireless.”

Ergen’s vision would include a bundled package of satellite television, broadband wireless Internet and cellular telephone service. Providing suitable wireless broadband Internet in rural areas may be the biggest challenge because of Sprint’s more limited network coverage, but a marketing deal combining satellite television from Dish and Sprint cell phone service would be easier to carry out.

Ergen’s offer includes $8.2 billion in stock and $17.3 billion in cash. Ergen’s company has stockpiled at least $10 billion from selling bonds over the last year. He intends to borrow the rest.

Ergen earlier had attempted to disrupt a deal that would have consolidated Clearwire into Sprint. Ergen offered $3.30 a share for Clearwire, 33 cents higher than the $2.97 per share offer from Sprint. Ergen also reportedly approached both MetroPCS and Deutsche Telekom’s T-Mobile USA looking for a deal to no avail.

Some analysts question whether Ergen has enough experience to manage a major wireless company with only his past involvement selling satellite TV subscriptions. But he arrives with more than just cash and stock options. Ergen has acquired mobile spectrum from bankrupt TerreStar Networks and DBSD North America. Ergen says he has no interest in building his own wireless network, but a combined Sprint/Dish could manage the spectrum through Sprint’s existing operations.

Ergen told Bloomberg News combining the spectrum Dish owns with the spectrum owned by Sprint and Clearwire would assure Americans of a robust wireless data platform that will not have capacity constraints or require individual device fees. That is in keeping with Sprint’s existing marketing as a provider of truly unlimited wireless data plans.

Several Wall Street analysts told CNBC and Bloomberg News the deal with Softbank may be more ideal for shareholders and consumers, because it would strengthen Sprint’s leverage with equipment manufacturers to offer cheaper and more robust devices.

Consumer advocates have mixed feelings. Dish has no prior association to the wireless industry so the deal does not represent direct, competitive consolidation. It also would boost Sprint as a more formidable competitor to AT&T and Verizon Wireless. But it could also further orphan T-Mobile USA.

“Right now, we have two giants and two also-rans, and now you’re getting potentially three giants dividing up the American market place, with T-Mobile lagging far behind,” Susan Crawford told the New York Times.

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Bloomberg News explores what Dish sees in Sprint that is worth a bid of $25.5 billion to acquire the country’s third largest mobile company.  (2 minutes)

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Bloomberg says Dish has been stockpiling $10 billion in cash for new acquisitions to transform its business away from a satellite TV-only company.  (2 minutes)

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Christopher Marangi, of Gabelli Asset Fund talks with Bloomberg’s Erik Schatzker about Dish Network’s unsolicited $25.5 billion offer for Sprint and what options are available to Sprint with the offers it has on the table. (2 minutes)

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Jonathan Chaplin, an analyst with New Street Research LLP, thinks Softbank’s original offer is superior to the one from Dish.  (6 minutes)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg Bidding for Sprint Is Not Over Fritzshe 4-15-13.flv[/flv]

Jennifer Fritzsche, Managing Director of Equity Research at Wells Fargo Securities, discusses the likelihood of other players making bids. (2 minutes)

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A Bloomberg News reporter interviewed Charlie Ergen about why he wants to enter the wireless business.  Ergen’s vision includes no nickel and diming customers with monthly device fees and usage charges. (4 minutes)

The Federal Communications Commission has opened the door for Time Warner Cable to raise basic cable rates in several parts of Ohio and California after ruling the company faces effective competition from Dish Networks and DirecTV.

Under FCC rules cable rates for the broadcast basic tier, which includes local television stations and a handful of basic cable networks, remain regulated by the government until a cable operator can prove at least 50 percent of their service area is covered by a competing provider and 15 percent of its would-be customers are signed up with a competitor.

Cable companies have requested rate deregulation in countless communities as satellite and television service from phone companies penetrates their markets. Once rates are deregulated, cable operators can raise them to whatever price they believe the marketplace will bear.

In several affected communities, Time Warner Cable’s service is so uncompelling, almost half of the households have signed up for satellite service instead.

The communities affected in Ohio:

• City of Bellefontaine
• Howard Township
• Village of Huntsville
• Village of Lakeview
• McArthur Township
• North Bloomfield Township
• Village of Russells Point
• Stokes Township
• Washington Township
• Village of Zanesville

In California:

• Bradford

CNET was forced to withdraw a planned award for Dish Network’s ad-skipping “Hopper” DVR because the website’s owner, CBS, is suing the satellite dish company over the device.

The rift has led to questions about the editorial independence at CNET, and as of this afternoon, a senior writer has quit over the controversy.

Greg Sandoval, who formerly reported for the Washington Post and Los Angeles Times resigned in protest less than one hour after reports surfaced CNET was ordered to disqualify Dish Network from consideration at the Best of C.E.S. Awards in Las Vegas last Thursday.

The well-advertised Dish Hopper DVR allows viewers to seamlessly skip past advertising on recorded major network primetime programming. CNET disclosed that regardless of the product’s merits, it could not be considered at the awards event because the website’s owner was actively engaged in litigation that argues the device violates U.S. copyright laws.

“We are saddened that CNET’s staff is being denied its editorial independence because of CBS’s heavy-handed tactics,” said Dish Network CEO Joseph P. Clayton. “This action has nothing to do with the merits of our new product. Hopper with Sling is all about consumer choice and control over the TV experience. That CBS, which owns CNET.com, would censor that message is insulting to consumers.”

The Verge website turned up the temperature in CNET’s offices when it reported the Dish Hopper was banned from consideration only after it became apparent it was going to win an award:

Before the winner was unveiled, CBS Interactive News senior-vice president and General Manager Mark Larkin informed CNET’s staff that the Hopper could not take the top award. The Hopper would have to be removed from consideration, and the editorial team had to re-vote and pick a new winner from the remaining choices. Sources say that Larkin was distraught while delivering the news — at one point in tears — as he told the team that he had fought CBS executives who had made the decision.

The Verge added there was clear evidence of a growing influence on the editorial decisions at the digital news subsidiaries owned by CBS, all designed to protect the parent company.

Sandoval left almost immediately after The Verge went public with its report.

CBS released a statement earlier this afternoon:

CBS has nothing but the highest regard for the editors and writers at CNET, and has managed that business with respect as part of its CBS Interactive division since it was acquired in 2008. This has been an isolated and unique incident in which a product that has been challenged as illegal, was removed from consideration for an award. The product in question is not only the subject of a lawsuit between Dish and CBS, but between Dish and nearly every other major media company as well. CBS has been consistent on this situation from the beginning, and, in terms of covering actual news, CNET maintains 100% editorial independence, and always will. We look forward to the site building on its reputation of good journalism in the years to come.

Dish Network is planning to introduce 5Mbps nationwide satellite broadband service after its partner company EchoStar successfully launched the satellite that will host the new service.

Bloomberg News reports Dish will introduce the service in late September or October this year and intends to market it in areas where DSL or cable broadband has been spotty or unavailable.

Dish’s broadband service will use its new EchoStar 17 satellite launched in July. The satellite can technically support download speeds up to 15Mbps, but Dish wants to start with slower speeds to maximize the number of potential customers the satellite can accommodate, which the company estimates can be as high as two million.

With an estimated 8-10 million Americans currently bypassed by broadband, Dish may have little trouble establishing a substantial customer base, if the service works as advertised. Past satellite broadband ventures have traditionally offered slow speeds and draconian “fair usage policies” which strictly limit how much customers can use the service.  The services are not cheap either.

EchoStar’s vice president of investor relations Deepak Dutt said the newest generation of satellite broadband services offer much faster service and higher capacity by an order of magnitude. But average usage per subscriber has also risen, providing a challenge for satellite broadband providers that may lack the capacity to sustain high bandwidth content, especially streaming video.

Dish already offers up to 12Mbps satellite broadband through a marketing partnership with Carlsbad, Calif.-based ViaSat, Inc. But ViaSat’s service is limited to certain geographic regions in the United States. Dish insiders say their service with EchoStar will compliment, not replace their deal with ViaSat, and will expand coverage nationwide.

The combination of broadband and satellite television may make it possible for Dish to sell new bundled packages that can compete with phone and cable companies. Dish also claims to be waiting for Federal Communications Commission approval to use its wireless spectrum to offer mobile Internet and phone service, which could also be included in a future bundled offer.

A Short History of Wireless Cable

Spectrum offered Chicago competition to larger ON-TV, selling commercial-free movies and sports on scrambled UHF channel 66 (today WGBO-TV).

Long before many Americans had access to cable television, watching premium commercial-free entertainment in the 1970s was only possible in a handful of large cities, where television stations gave up a significant chunk of their broadcast day to services like ON-TV, Spectrum, SelecTV, Prism, Starcase, Preview, VEU, and SuperTV. For around $20 a month, subscribers received a decoder box to watch the encrypted UHF broadcast programming, which consisted of sports, popular movies and adult entertainment. The channels were relatively expensive to receive, suffered from the same reception problems other UHF stations often had in large metropolitan areas, and were frequently pirated by non-paying customers with modified decoder boxes.

With the spread of cable television into large cities, the single channel over-the-air services were doomed, and between 1983-1985,virtually all of their operations closed down, converting to all-free-viewing, usually as an independent or ethnic language television outlet.

But the desire for competition for cable television persisted, and in the mid-1980s the Federal Communications Commission allocated two blocks of frequencies for entertainment video delivery. The FCC earlier allocated part of this channel space to Instructional Television Fixed Services (ITFS) for programming from schools, hospitals, and religious groups, which could use the capacity to transmit programming to different buildings and potentially to viewers at home with the necessary equipment.

Home Box Office got its start broadcasting on microwave frequencies before moving to satellite.

In practice, ITFS channels allocated during the 1970s were underutilized, because running such an operation was often beyond the budgets and technical expertise of many educational institutions. Premium movie entertainment once again drove the technology forward. After signing off at the end of the school day, Home Box Office, Showtime, and The Movie Channel signed on, using microwave technology to distribute their services to area cable systems and some subscribers. As those premium services migrated to satellite distribution beginning in 1975, reallocation for a new kind of “wireless cable TV” became a reality.

Wireless cable (technically known as “multichannel multipoint distribution service”) began in earnest in the late 1980s and early 1990s, with a package of around 32 channels — typically over the air stations, popular cable networks, and one or two premium movie channels. Some operations in smaller cities sought to beam just a channel or two of premium movies or adult entertainment to paying subscribers, the latter at a substantial price premium. Installation costs paid by providers were more affordable than traditional cable television — around $350 for wireless vs. $1,000 for cable television. That made wireless attractive in rural areas where installation costs for cable television could run even higher.

However, it was not too long before wireless cable operators ran into problems with their business models. Obtaining affordable programming was always difficult. Some cable networks, then-owned by large cable systems, either refused to do business with their wireless competitors or charged discriminatory rates to carry their networks. By the time legislative relief arrived, the wireless industry realized they now had a capacity problem. As cable television systems were being upgraded in the 1990s, the number of channels cable customers received quickly grew to 60 or more (with many more to come with the advent of “digital cable”). Wireless cable was stuck with just 32 channels and a then-analog platform. Satellite television was also becoming a larger competitive threat in rural areas, with DirecTV and Dish delivering hundreds of channels.

American Telecasting gave up its wireless cable ventures, under such names as People’s Wireless TV and SuperView in 1997, selling out to companies including Sprint and BellSouth (today AT&T). BellSouth pulled the plug on the services in February, 2001.

Wireless providers simply could not compete with their smaller packages, and most closed down or sold their operations, often to phone companies. The few remaining systems, mostly in rural areas, have typically combined their wireless frequencies with satellite provider partners to deliver television, slow broadband, and IP-based telephone service.

Rebooting Wireless Cable for the 21st Century

By the early-2000’s the Federal Communications Commission proposed a new allocation for a “Multichannel Video and Data Distribution Service” (MVDDS). Designed to share the 12.2-12.7GHz band with Direct Broadcast Satellite (DBS) services DirecTV and Dish, MVDDS was partly envisioned as a potential way to deliver local stations to satellite subscribers over ground-based transmitters. But things have evolved well beyond that concept, especially after both satellite providers began using “spot beams” to deliver local stations to different regions from their existing fleet of orbiting satellites.

MVDDS was ultimately opened up to be either a competing cable television-like service or for wireless broadband, or both. Michael Powell, then-chairman of the FCC during the first term of George W. Bush, said the technology was free to develop as providers saw fit:

What is MVDDS? The short answer is that we do not know.  Its name, Multichannel Video Distribution and Data Service, seems to suggest everything is possible – and perhaps it is.

But the service rules the Commission has adopted do not require MVDDS to provide any particular kind of service – it could be a multichannel video, or data, or digital radio service, or any other permutation on spectrum use.

The Commission was once in the business of requiring spectrum holders to provide a certain type of service.  That approach failed because government is a very bad predictor of technology and markets – both of which move a lot faster than government.  Over the past decade or so, the Commission has adopted more flexible service rules that bound a service based largely on interference limitations and its allocation (fixed or mobile, terrestrial or satellite).  In this Order, we follow that flexible model for MVDDS.

In 2004 and 2005, licenses to operate MVDDS services were opened up for auction, and a handful of companies won the bulk of them: MDS America, which built a 700-channel wireless cable system in the United Arab Emirates, DTV Norwich, an affiliate of cable operator Cablevision, and South.com, which is really satellite provider Dish Network. Another significant winner was Mr. Bruce E. Fox, who wants to partner with other providers to finance and operate MVDDS services.

Cablevision and Fox are the two most active license recipients at the moment.

A Look at Today’s MVDDS Wireless Players

Fox launched Go Long Wireless in Baltimore as a demonstration project. Go Long transmits its signal from the roof of the World Trade Center at the Baltimore Inner Harbor to the Emerging Technology Center, a business incubator site a few miles away. Fox believes the technology is especially suited to multi-dwelling units like apartment complexes and condos. He plans to work with other service providers who will market and bill the service under their own brand names. Fox does not seem to be interested in challenging the marketplace status quo. He does not believe in using MVDDS to provide television service, for example. In Fox’s view, the real money is in broadband and Voice over IP telephone service.

Cablevision’s involvement is more direct-to-consumer. Its Clearband service– now operating under the new brand ‘OMGFAST’ — is now selling up to 50/3Mbps wireless broadband service in the Deerfield Beach, Fla. area. The company has had nothing to say about whether this service is slated to expand, and if it does, Cablevision will not be permitted to operate it in areas where they already provide cable service, due to the FCC’s cross-ownership rules.

OMGFAST originally bundled voice service in its broadband packages, which it sold at different price points: 12Mbps for $39.95 a month, 25Mbps for $59.95 a month, and 50Mbps at $79.95. The company also tested a 50Mbps promotion priced at $29.95 a month for three months, $59.95 ongoing. Today it offers a better deal: $29.95 a month for 50Mbps service as an ongoing rate. (Expect to pay $10 a month more for mandatory equipment rental, and $14.95 a month if you also want voice service.)

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Here is a promotional video explaining how Clearband (now OMGFAST) wireless broadband works. (3 minutes)

MVDDS currently delivers broadband with similar constraints cable systems operate under — namely, download speeds are much faster than upload speeds. That is because upstream bandwidth relies on another transmission technology, often WiMAX, in the 3.65 GHz or 5 GHz bands.

The wireless technology is also very “line of sight,” meaning the tower must be within six miles of the subscriber and not blocked by any obstructions. Hills, buildings, even heavy foliage can all block MVDDS signals the same way satellite signals can be blocked (they share the same frequencies).

Most customers end up with an antenna that very much resembles a traditional satellite dish from DirecTV or Dish, mounted on a roof. To maximize available bandwidth, MVDDS uses a configuration similar to cellular systems, with up to 900Mbps of total bandwidth available to each 90-degree narrow beam sector.

Cablevision has MVDDS licenses to serve most large cities in the United States.

The question is, how will license holders ultimately use the technology. Although originally proposed as a competitor to traditional cable or satellite TV, deregulation has left the fate of MVDDS in the hands of the operators.

Some are considering not selling the service to consumers at all, but rather making a market out of providing backhaul connectivity for cell towers. Dish may be interested in using its licenses to offer customers a triple play package of broadband and phone service with its satellite TV package. Nobody seems particularly interested in providing television service over MVDDS, primarily because programmers’ demands for higher carriage payments would cut into revenue.

Even Cablevision isn’t completely sure what it wants to do. Although it currently is trialing broadband and phone service in Florida, the company earlier petitioned the FCC for increased power to establish a more suitable wireless backhaul service it can sell to mobile phone companies.

For the moment, reviews seem relatively positive for the Florida market test. Of course, as more customers pile on a wireless service, the less speed becomes available to each customer. OMGFAST does not appear to be currently concerned, noting it has no usage caps on its service.

Want to know which provider may be coming to your area? See below the jump for a list of the top-three bid winners and the cities they are now licensed to serve, in order of market size.

… Continue Reading