California PUC likely to upset T-Mobile's 3G sunset plans: analyst

Analysts at New Street Research previously figured that judges in the California Public Utility Commission (CPUC) hearing on T-Mobile’s proposed shutdown of its CDMA network appeared to be more sympathetic to Dish Network than to T-Mobile, and that view was reinforced now that the transcript has been made available.

“We continue to think the judges are leaning toward some kind of action that will interfere with T-Mobile’s current plans,” wrote New Street’s policy analyst Blair Levin in an October 3 note for investors.

The showdown between T-Mobile and Dish stems from T-Mobile’s October 2020 notification to Dish that it was going to be shutting down the CDMA network in January 2022. Dish was under the impression it had three years to transition Boost Mobile subscribers off CDMA and onto another network, which requires customers be outfitted with new, compatible devices. The squabble grew intense enough for Dish Chairman Charlie Ergen to call out T-Mobile as the “magenta Grinch.”

T-Mobile insists that it never intended to let the network transition go on for that long – it wants to convert people from CDMA as soon as it can, in order to shut down as much Sprint gear as possible, convert the spectrum over to 5G and basically take advantage of the “synergies” it gets by operating one network rather than two.

RELATED: T-Mobile, Dish take CDMA showdown to CPUC court

The CPUC was under the impression that Dish would have up to three years in which to complete the Boost customer migration. “T-Mobile also omitted and/or provided misleading information regarding the fact that … PCS spectrum was used to provide service to Boost customers on the CDMA network and the same spectrum would be required for the build-out of the 5G network,” the CPUC said in its August 13, 2021, summary judgement. At that time, the CPUC directed T-Mobile to show cause why it shouldn’t be sanctioned by the commission for violating rules that forbid “false, misleading or omitted statements.”

Specifically, “T-Mobile made statements under oath indicating that … its code division multiple access (CDMA) network would be available to Boost customers until they were migrated to Dish Network Corporation’s LTE or 5G services,” and that maintaining service to the CDMA network during the Boost customer migration would not affect T-Mobile’s 5G buildout, according to the CPUC’s ruling.

RELATED: CPUC digs into T-Mobile claims about CDMA shutdown

Exactly what the CPUC’s ultimate decision could mean for T-Mobile in practicality is unclear. But if the government forces T-Mobile to delay the CDMA shutdown until the middle of 2022 when they shut down the Sprint LTE network, instead of early 2022 , the impact on the timing of synergy realization likely will be negligible, according to the New Street team. In that light, “we think T-Mobile has given themselves room by setting the CDMA shutdown six months ahead of the LTE shutdown, likely anticipating that there could be a dispute about the CDMA shutdown date.”

However, if government action forces T-Mobile to end up delaying the CDMA shutdown until the end of 2022 or the middle of 2023, T-Mobile also won’t be able to capture the bulk of the network until that time, Levin wrote, noting that T-Mobile has laid out synergies as being worth $5 billion in annual savings, comprised of $3 billion of hard costs from running the network today and $2 billion from avoided densification. “This would be true even if T-Mobile shuts down the Sprint LTE network in the interim, as, again, both Sprint networks need to be turned off to capture the bulk of decommissioning synergies.”

The silver lining for T-Mobile investors is that the synergies eventually will be the same size whenever they are allowed to shut down the networks, he added. “The troubling aspect, however, for such investors is that the T-Mobile network proposition materially improves once it consolidates the Sprint sites and spectrum onto one network. This is important to the organic growth opportunity in which T-Mobile takes meaningful share from others. In other words, delaying the network shutdown mechanically delays synergies, but it also delays T-Mobile’s ability to take share from the incumbents, which are more important to T-Mobile’s prospects in the long run.”

T-Mobile’s head start on mid-band spectrum deployment for 5G is diminishing as Verizon and AT&T inch closer to deploying the C-band 3.7 GHz spectrum that becomes available later this year. Granted, T-Mobile has been deploying 2.5 GHz spectrum, which it acquired from Sprint, at a frenzied pace. Still, AT&T and Verizon (and T-Mobile) will have a chance to acquire more mid-band spectrum in the 3.45 GHz auction that starts this week.

One migration instead of two?

As for Dish, “we think the calculation is more about the cost of two migrations instead of one,” Levin wrote. “Again, we think Dish and T-Mobile are fighting about shutting down the CDMA network in mid-2022 or mid-2023; they are not fighting about mid-2022 versus mid-2025. That is, we think the maximum delay would be something approaching one year. By mid-2023, Dish believes it will cover 70% of the country with own network (per its commitment to the FCC), so it appears to us that Dish is trying to not have to pay for two migrations – first from the Sprint CDMA network to the T-Mobile network and the second from the T-Mobile network to Dish. Obviously, they would rather simply do a migration from the Sprint CDMA network straight to their own.”

While the judges’ questions and comments are open to interpretation, the analysts cited press reports that indicated the judges in the hearing appeared more sympathetic to Dish’s arguments that the shutdown should be delayed than to T-Mobile’s arguments that the company had the right to shut it down sooner.

One judge started by saying, “T-Mobile had pledged that no former Sprint customer would suffer any service degradation following the merger. Further, T-Mobile represented that DISH would have up to three years within which to complete migration of the Boost wireless, hereafter ‘Boost,’ pre-paid customer base to the New T-Mobile 5G network, which DISH would be using as a virtual network operator during the build-out of its own facilities-based network. Thus, it came as a surprise to the Commission when on/or about July 1st, 2021, T-Mobile announced that it would shut down the legacy CDMA network used by Boost subscribers at the end of this year.”

A lot of the testimony during the hearing revolved around the “three year” mark and how exactly that was measured.

Here’s another excerpt from a judge’s comments: “In reading through your [T-Mobile] testimony and your supplemental testimony, one of the things I note is that you almost always refer to completing customer migration or integration within three years. I know it's being nit-picky, but within three years could mean less than three years or not more than three years. And in context, I think it frequently reads as if it’s not more than three years.”

T-Mobile’s deal to merge with Sprint was never an easy proposition at the CPUC. In fact, citing the instability of financial markets near the outset of Covid-19 in the spring of 2020, T-Mobile CEO Mike Sievert informed the CPUC that they were going through with the merger with or without its consent. T-Mobile announced the closure of the Sprint deal on April 1, 2020, and the CPUC issued an order later that month granting the transaction, subject to a number of conditions.

RELATED: T-Mobile wrangles with California over merger

In April of this year, Dish asked the CPUC to reopen its proceeding involving the merger of Sprint and T-Mobile in order to enforce merger commitments.

“This is not to say that every T-Mobile argument was challenged, and every Dish argument was applauded. It is simply to say that having now reviewed the transcript, we continue to think that California will act in a way that upsets T-Mobile’s current plans,” Levin wrote.