Paid TV, wireless giants said to explore mega-merger

Bigger is better these days when it comes to media and telecommunications companies, but gigantic may be best.

Shares of T-Mobile US (TMUS) were up $1.66, or 4.3 percent, to $39.99 early Thursday afternoon after The Wall Street Journal reported that the wireless provider is in talks to be acquired by satellite TV company Dish Network (DISH), whose stock price also rose.

Although no deal terms have surfaced, the deal would be a large one, given T-Mobile's $31 billion market capitalization. Jonathan Chaplin, an analyst with New Street Research, said T-Mobile could fetch as much as $45 a share in cash and stock, which would value the company at nearly $40 billion.

The deal looks like a good match on paper, especially as cable, phone and Internet players play musical chairs in a rush to merge amid rapid consolidation. Dish CEO and media tycoon Charlie Ergen has openly argued for years that his company needs to find a merger partner. Germany's Deutsche Telekom, which controls 66 percent of T-Mobile, has reportedly been on a similar quest.

A T-Mobile spokesperson declined to comment, while Dish did not respond to a request for comment.

Dish is the second-largest provider of satellite TV service, with about 13.8 million customers. But it has a problem: Paid TV is in decline thanks to the surging popularity of online streaming services such as Netflix (NFLX) and Hulu. Recent disputes broadcasters over fees for the right to transmit their content seem to have inflicted further damage, with Dish losing 134,000 subscribers in the first quarter alone.

Meanwhile, rivals such as Comcast (CMCSA), the largest U.S. cable provider, have been able to offset declines in cable with gains in broadband. Dish's Internet business is small, attracting only 591,000 customers, compared to roughly 20 million for Comcast.

T-Mobile is also under pressure to get bigger. Although the company has seen rapid organic growth under the aggressive leadership of CEO John Legere, its roughly 45 million customers ranks it No. 4 among U.S. wireless carriers. That leaves it much smaller than competitors such as Verizon (VZ), which has 133.5 million customers; AT&T (T), with 120 million; and Sprint (S), 57 million.

Federal regulators rejected efforts by AT&T to acquire T-Mobile in 2011 after similar plan by Sprint last year. The Justice Department in April quashed Comcast's planned acquisition of Time Warner Cable (TWC). Because Dish and T-Mobile are in different businesses, by contrast, a deal would likely get the green light from antitrust enforcers.

"The timing is interesting; about half the alternate suitors for both companies are engaged in deals or have recently had deals shot down, making it more difficult for them to mount counter-bids," New Street Research said in a note assessing the prospect Dish buying T-Mobile.

T-Mobile has something that Ergen has long coveted: wireless spectrum. The loquacious media tycoon has argued for years that he wants to enter the wireless business and has been "amassing" the required licenses. AT&T's $18.2 billion bid for spectrum at a government wireless auction earlier this year topped a $13.2 billion offer made by Dish and its partners.

Further complicating the picture are huge deals in the works involving rivals of both Dish and T-Mobile, such as AT&T's proposed $49 billion acquisition of DirecTV (DTV). Charter Communications (CHTR), which is controlled by Ergen rival John Malone, recently announced that it would acquire Time Warner Cable and Bright House Networks for $67 billion, which if approved by regulators would create the second-largest cable company behind Comcast.

Another potential stumbling block on the way to the altar for Dish and T-Mobile are their high-profile leaders. Ergen, who the Journal said would become chairman of the merged company, has a reputation as a tough dealmaker. Legere, who would become CEO, is seen as brash and media-savvy, often taking to Twitter to trash talk his rivals in the industry.

"It would be an incongruous marriage to say the least," Chaplin said, expressing skepticism that Ergen and Legere could work together.