handshakeThere’s a major paradox in the wireless industry today.

On the one hand it’s never been more difficult to compete. With subscribers heavily concentrated in the hands of the two largest carriers AT&T and Verizon Wireless – a situation compounded by the advent of exclusive and near-exclusive handset deals — you won’t find many people who are very bullish about the business prospects for anyone but the two dominant carriers.

Yet some of the second-tier companies have succeeded recently in commanding higher than anticipated valuations. MetroPCS was successful in persuading T-Mobile to boost its price when it acquired the company several weeks ago. Just yesterday Sprint raised its bid for Clearwire. And Sprint itself is weighing purchase offers from two different companies – including Japanese carrier Softbank as well as satellite service provider and would-be wireless operator Dish Network.

Dish Network also is exploring other options. According to news reports, the company also this week revealed it had made a bid for LightSquared – a company widely characterized as foolhardy for its attempt to use satellite spectrum for a terrestrial network. Apparently in today’s environment, even a company many people wrote off months ago is worth another look.

It’s not difficult to fathom what’s going on here. With relatively little new spectrum expected to come on the market in the near future, carriers are looking at other carriers’ holdings. To make a real estate analogy, it’s as if there’s not much farmland left for suburban developments so there’s no choice but to look at downtown renovations.

Combine that reality with the widely held view that the industry needs to consolidate and the result is upped and unexpected bids for smaller wireless players.

Actually, Dish’s bid for LightSquared isn’t entirely unexpected. If anyone experienced a déjà vu about that development, it’s probably because satellite broadband analyst Tim Farrar of TMFAssociates last year speculated that Dish might consider using the LightSquared spectrum for upstream communications.

Here, too, it may be all about spectrum — and even LightSquared’s heavily encumbered spectrum is seen as potentially valuable.

How strong will merged companies be?
The question now is what results we’ll see from cobbled-together wireless companies such as T-Mobile/ Metro PCS or Sprint/Clearwire plus either Softbank or Dish (perhaps with LightSquared thrown in).

Offering lower pricing than the Big Two is one approach. It’s a strategy that’s worked in other markets. It’s also one that T-Mobile traditionally has used and which the company seems to be adopting more aggressively now that MetroPCS is part of its operations.

The best strategy for Sprint isn’t so clear – and not surprisingly, I’ve heard a wide range of views on whether it would be better for the company to be acquired by Softbank or Dish. Some see Softbank as better established and more stable, making it a safer bet. And Softbank could be on to something if TD-LTE really proves to be a more economical technology to deploy and operate. Although the technology is barely adopted at all in the U.S., it’s considerably stronger overseas.

Other industry observers see more synergies in the Dish proposal, noting that unlike with Softbank, both companies have spectrum in the U.S. And if the next big thing in wireless is integration with wireline offerings through initiatives such as TV Everywhere, Dish’s pay TV heritage could be an important asset.

The good news for companies like T-Mobile and Sprint is that even if their new assets and new strategies do not enable them to profitably complete against the dominant carriers, their operations will always have value simply because of their spectrum assets. And based on what we’re seeing now, it would appear that the value of those assets will continue to climb regardless of what else may happen.