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Failed Mergers Biggest Obstacle In DISH’s Bid For T-Mobile

The proposed merger between DISH Network and T-Mobile sounds like a perfect match, but DISH’s mishandling of previous merger attempts could sour the deal.

The Wall Street Journal reported last week that the two companies are in the formative stage of merger talks, and have already agreed that DISH CEO Charlie Ergen would serve as the combined entity’s chairman, while T-Mobile CEO John Legere would become CEO.

Analysts say a merger would advance the strategic objectives of both companies, largely thanks to the hefty portfolio of wireless spectrum licenses that DISH has amassed.

DISH currently lacks the cellular network it needs in order to put the spectrum to use within the two-year window imposed by the Federal Communications Commission. Merging with T-Mobile would address that shortcoming, allowing DISH to avoid the costly alternative of selling its licenses at a steep discount or forfeiting them back to the government.

For T-Mobile, the primary advantage lies in using DISH’s spectrum to expand network capacity, which would help the company compete with larger rivals AT&T and Verizon. (RELATED: DISH Set Up a Bunch of Companies to Claim Billions in ‘Small Business’ Credits)

Moreover, both companies have been actively seeking such a merger for years, though their efforts have so far been stymied, and DISH was apparently inspired to pursue the acquisition after federal regulators nixed a deal between T-Mobile and Sprint last year.

While T-Mobile’s failed merger made the deal possible, though, DISH’s past efforts on that front could have just the opposite effect. As a result of DISH’s unsuccessful attempts to buy out wireless carriers Sprint and Clearwire two years ago, the WSJ claims, Ergen has developed a reputation as someone with whom it is difficult to close a deal.

Also potentially troubling might be Ergen’s dispute with wireless broadband firm LightSquared, which was resolved in March after three years of litigation when the company agreed to buy out Ergen’s personal investment for $1.5 billion. (RELATED: Did DISH CEO Buy Special Treatment From the FCC?)

LightSquared filed for bankruptcy in 2012 after the FCC denied its request to repurpose spectrum intended for GPS devices to handle wireless broadband. Prior to the FCC’s ruling, Ergen believe the firm’s spectrum would increase significantly in value if DISH acquired it.

During the bankruptcy proceedings, the court determined that Ergen had made the investment anonymously through his personal accounts after lawyers learned that DISH was prohibited from acquiring the debt itself, though Ergen claimed the purchase simply made good business sense.

Judge Shelley Chapman rejected Ergen’s explanation in a ruling last June, in which she described his testimony as “not credible” and said Ergen’s acquisition of LightSquared debt “violated the covenant of good faith and fair dealing automatically implied by law in the Credit Agreement.”

Now, Deutsche Telekom, which owns 66 percent of T-Mobile’s stock, is expressing misgivings about the proposed merger, The New York Post reported Monday. (RELATED: DISH’s Duplicitous Auction Tactics Spur Action by the FCC)

At an event in Toronto last week, The Post claims, DT CEO Timotheus Höttges said that he would prefer to expand the company’s network by combining spectrum with Sprint, because selling the company to DISH could jeopardize a prospective partnership with Comcast.

A DT spokesman disputed the report, but declined to provide specifics, so the source of DT’s hesitation remains unclear.

DISH did not respond to requests from The Daily Caller News Foundation to provide comment.

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