The fate of T-Mobile and Sprint’s $26.5 billion merger may hinge on whether a federal judge sees satellite TV provider Dish Network as a viable fourth competitor in the US wireless market. But there isn’t an easy answer — especially when you balance its history of ignoring its obligations to build a wireless network with its newfound ambitions sparked by the mobile megamerger.
Last week, the Department of Justice announced a deal in which Dish would acquire some of Sprint’s assets to help it create a nationwide 5G wireless broadband network to rival the likes of AT&T, Verizon and the new T-Mobile.
Under this agreement, the DOJ has given its blessing to the merger, which the Republican-majority-run Federal Communications Commission has already thrown its weight behind. A green light from these two federal agencies is necessary in order for the deal to be consummated. (Attorneys general from 13 states and the District of Columbia are still vowing to block the deal.)
Dish adds a new wrinkle to the T-Mobile-Sprint saga, which has dragged on for more than a year already as executives lobbied lawmakers and officials. It’s a new, and potentially cheaper, option for consumers. It also helps the “New T-Mobile” build a far-reaching 5G network more thoroughly than if T-Mobile and Sprint remained independent.
The Justice Department has said that eliminating one of the four nationwide wireless carriers is a no-go from an antitrust perspective. That’s where satellite TV provider Dish Network comes in. The company is controlled by notorious deal-maker Charlie Ergen, who’s spent the better part of a decade promising to transition its shrinking satellite TV business into a mobile wireless powerhouse. And now with the help of the federal government, it’s getting closer to making this happen.
To help you better understand the deal, why Dish is even being considered as a player and what it means for you, CNET has put together this FAQ.
What did the DOJ decide?
The first thing that you need to understand is that the Justice Department earlier rejected the proposed merger between T-Mobile and Sprint because of the elimination of a competitor.
Specifically, it stated in its complaint that reducing the number of national wireless carriers from four to three “would cause the merged T-Mobile and Sprint (‘New T-Mobile’) to compete less aggressively. The result would be increased prices and less attractive service offerings for American consumers, who collectively would pay billions of dollars more each year for mobile wireless service.”
To fix this problem, the DOJ has brokered a deal with the companies, which will allow Dish to buy some of Sprint’s assets and create a fourth nationwide carrier.
What are the specific terms of this new deal?
T-Mobile and Sprint must divest Sprint’s prepaid business, including Boost Mobile, Virgin Mobile and Sprint prepaid, which accounts for 9 million prepaid subscribers, to Dish for $1.4 billion. Sprint must also give up 14 MHz of its 800 MHz spectrum to Dish for $3.6 billion within three years. In addition, T-Mobile will be required to offer access to its wireless network on a wholesale basis to Dish to support a wireless resale business for a period of seven years. (Details of this arrangement, including what price Dish will have to pay to access the T-Mobile network, haven’t been disclosed.)
Dish will get access to up to 20,000 of New T-Mobile’s decommissioned cell sites within three years. In exchange, Dish will be required to build additional sites and commit to covering 70% of the country with 5G broadband service with a minimum download speed of 35 Mbps by 2023. If Dish doesn’t live up to this expectation, it will be required to pay a penalty of $2.2 billion.
Why did the DOJ consider Dish the best candidate to replace Sprint as the fourth major wireless carrier?
While Dish isn’t in the wireless service business today, Chairman Charlie Ergen has talked up his ambitions to build a 5G wireless network to rival the incumbent national wireless players. For nearly a decade, his company has spent billions of dollars amassing 100 MH of wireless spectrum in various auctions and through private deals to assemble the building blocks to create such a business.
Dish also launched an unsuccessful bid to buy Sprint back in 2013. It considered buying T-Mobile, and also contemplated bidding on assets from the bankrupt company Lightsquared.
Through it all, Ergen has been steadfast in his assertion that he needs to transition Dish’s satellite TV business into a mobile wireless company. Its core business continues to lose subscribers as programming costs rise.
But up until this deal was announced, Dish hadn’t aggressively moved toward this ambition. In fact, some have criticized the company.
What’s the criticism of Dish?
Dish has been a major player in several past wireless auctions. And for years, the company sat on its assets without any plans for deployment. It has asked for and was granted build-out extensions from the FCC. Finally, the company agreed to spend $1 billion to build what it called a narrowband IoT (internet of things) network by March 2020. There has been some rumbling at the FCC and among other carriers, mainly T-Mobile, that if Dish failed to meet this deadline that it would have to give back its licenses.
While the terms of the brokered DOJ deal are broadly favorable for Dish, the biggest perk for the company is that the FCC will extend Dish’s build-out deadline by three years. But there’s one condition: The network that Dish builds must be a commercial wireless broadband network and not one just for IoT devices.
Why do the state AGs not like this deal?
There are several reasons why they don’t like the deal. Some of them relate specifically to Dish, but their biggest beef is that they don’t like the government propping up a competitor to replace Sprint as the fourth major wireless operator.
“The promises made by Dish and T-Mobile in this deal are the kinds of promises only robust competition can guarantee,” New York State Attorney General Letitia James said Friday in a statement after the DOJ announced its approval of the merger. “We have serious concerns that cobbling together this new fourth mobile player, with the government picking winners and losers, will not address the merger’s harm to consumers, workers and innovation.”
James listed a bunch of other concerns that are specific to Dish, too.
- Dish doesn’t currently operate a wireless business.
- Dish has never built or run a wireless business.
- Dish has “broken” promises to the FCC to build out a network using spectrum leased from the federal government.
- Dish’s future success in building a viable competitor is still dependent on T-Mobile, which will lease it network access to run its mobile virtual network operator business (known as an MVNO).
What does Dish say about this?
Dish says it’s committed to building this network. It knows its satellite TV business is shrinking, and it needs a new business model. But it takes issue with the characterization that it’s been reluctant to build a wireless network.
The reality is that building such a network is hugely expensive and risky. The company says it’s been biding its time waiting for the right timing and market conditions to make its move. Ergen, who’s the biggest shareholder of the company and controls the votes on its board, has been putting all the pieces together for the new network, acquiring wireless spectrum, pushing the FCC to change its rules so more spectrum can be used for wireless broadband, and working within industry groups to create standards for 5G.
As for the specific allegations that the company should be discounted because it’s not currently in this business, Ergen on a conference call with investors this week said he was “insulted” by the suggestion that the company wasn’t qualified to compete against the wireless players.
In fact, he said he did the same thing in the 1990s when Dish embraced digital compression technology to enter the satellite TV business. Up until that point, Dish had only been a satellite equipment distributor, but with the advent of digital compression technology, the company invested in launching its own satellites and started delivering satellite TV service to homes throughout the US. It eventually emerged as a leader in the paid TV market, becoming a competitor to cable.
“We didn’t have any money,” Ergen said of his company’s foray into the digital satellite TV business in the 1990s. “We had never built a satellite. We had never built a set-top box. We had never interfaced with customers; never taken a call; never built an uplink center; never done encryption in our life, and yet we were able to do all that.”
He continued that he knows what he is up against in the wireless market.
“It’s not our first rodeo,” he said. “I think we’ll be a competitive threat in this business.”
So does this mean more deals for me?
It’s unclear. No one’s talking about what those plans will look like. Keep in mind that it’s also buying the prepaid business from Sprint. That’s going to leave out a lot of so-called postpaid customers, who pay at the end of the month and tend to have deeper wallets and better credit scores.
He also said he expects the new Dish prepaid service to offer “disruptive” pricing from day one. That’s “not only because of attractive rates but also bundling capabilities that are addressed in the deal,” said Tom Cullen, an executive vice president at Dish.
If Ergen and Dish are earnest in their plan, why are there so many naysayers?
Consumer advocate Gigi Sohn, a fellow at Georgetown Law’s Institute for Technology Law & Policy and a former FCC lawyer, who advised previous FCC Chairman Tom Wheeler, said that even if you take Dish’s assertions and ambitions at face value, the DOJ’s deal is still too risky for consumers. She reiterated one of the major concerns the AGs still have with this deal, which is the MVNO agreement and Dish’s dependence on T-Mobile.
The way such arrangements work is that Dish will pay T-Mobile for access to its network, but it’s unclear what that pricing will look like and whether Dish will be able to turn a profit while still paying T-Mobile for access to its network.
The Justice Department didn’t disclose details of the arrangement between T-Mobile and Dish, except to say that the rates must be “reasonable.” Dish executives said on their conference call this week that the “economics on the MVNO deal” are “attractive.” Cullen noted that “at the end of the day, it’s always going to be more cost-effective for us to be our own network.” He said this will provide an incentive for the company to build its own network quickly before the MVNO deal expires in seven years.
But Sohn said she’s still skeptical that Dish could become a strong competitor right away given that T-Mobile doesn’t have to hand over the retail locations or decommissioned cell towers for five years.
“I don’t see anything in this settlement that gives me comfort that there will be a competitor to benefit consumers anytime soon, if ever,” she said. “And I don’t think the consumer should bear the risk of this failing.”
Is there anything else that could be done to make Dish a stronger competitor?
That’s the big question. But experts like Sohn say no.
“I don’t see the rationale for standing up a fourth competitor that is fundamentally weaker than Sprint,” she said. “Is there a way to cure that? I don’t know, short of blocking the deal.”
If the deal gets blocked, does this mean Dish won’t build a 5G broadband network?
Not necessarily. Dish has invested billions in its spectrum and it’s already committed to building a 5G network, albeit in a phased deployment. Ergen has stated numerous times before that his plan is to eventually build a nationwide 5G broadband network.
If the AGs take their case to court and a federal judge blocks the merger, Sprint may eventually spin off its assets on its own. Whether those assets will go to Dish or someone else, like cable providers, is unknown.
“I’m confident there are other ways for Dish to become a 5G wireless player,” Sohn said. “And I cheer them on in their pursuit to get into this market. But this deal isn’t the way to do it.”