Investment analysts are speculating today about apparently tense negotiations over T-Mobile’s sale of the Boost Mobile business to Dish Network and terms of their MVNO agreement, which are part of the government’s remedy in approving the T-Mobile/Sprint merger.
Analysts aren’t saying the drawn-out negotiations will unravel the merger, but they’re questioning what it means for the overall competitive landscape and the role the government plays in getting the deal over a July 1 finish line.
MoffettNathanson Research released a report for investors titled: ”Dish Network and T-Mobile: What Is Charlie Up To?,” referring to the chairman and co-founder of Dish, Charlie Ergen. Known for his hardball negotiating tactics, Ergen is said to be more concerned about the MVNO deal than the Boost prepaid business itself.
Without an MVNO deal, Dish would not be able to generate revenue from its fledgling network until its planned 5G network was finished and serving customers on a standalone basis. Boost gives it a retail presence, at least in the early days.
“We’re never sure whether the questions we get about Dish Network are out of genuine interest in Dish as an investment, whether long or short, or merely out of rubber-necking curiosity,” wrote analyst Craig Moffett. “’What is Charlie up to?’ has been among the most common questions we’ve gotten for the past, oh, let’s say twelve years.”
It’s once again the question of the day, and despite a great deal of reporting and conjecture, “we still don’t know what the supposed renegotiation is about,” he wrote. It’s reasonable to assume that the value of the asset he’s buying will have been impaired by the COVID-19 crisis and he may be making a case for a lower purchase price than the agreed upon $1.4 billion, but it could be about something else entirely, such as the short term lease of Dish’s 600 MHz spectrum to T-Mobile, Moffett noted.
However, if Dish is dithering over the price of the prepaid Boost business, it misses the forest for the trees, according to Moffett. “The value of the prepaid business might be debatable,” he said. “The value of the MVNO agreement and the license extensions is not. It may be Dish Network’s style to always argue over every dollar. But that impulse seems largely self-defeating in this case.”
Analysts at New Street Research held a call for clients today titled: “What would happen if Dish walked away from the Boost deal?” Analysts Jonathan Chaplin and Blair Levin, as well as Wiley Rein partner Bennett Ross, offered their thoughts on the situation, delving into what could happen were Dish to walk away. One of the questions was whether T-Mobile can sell Boost to someone else and if so, the value of the business.
“While we hear reports of T-Mobile potentially selling Boost to others, we don’t see that contemplated by the DOJ or FCC documents and we think such a sale would undermine the arguments the federal government entities made to the courts and the public about creating a fourth competitor,” Levin wrote in a June 12 note for investors.
"Our bottom line is that DISH likely believes it will have to buy Boost to get the extension and will act accordingly. While we think it could litigate the issue, the risk of losing is sufficiently high, and the potential cost of being denied the extension would be far greater than the cost of buying Boost. But we do think DISH can push the DOJ to force T-Mobile to meet all the closing conditions before making the purchase,” Levin said.
During Dish’s first-quarter conference call on May 7, Ergen said there are certain things that have to happen before it closes the Boost transaction and mentioned cross provisioning as an example. When Dish owns Boost, it needs to provision all its customers and new customers on the T-Mobile network – rather than the Sprint network that Boost has been using. That appeared to be one of the hurdles that needed to be ironed out, but it’s not clear what else could be holding it up.
The Department of Justice approved the merger of T-Mobile and Sprint provided that Dish replaces Sprint as a fourth national competitor. As part of the deal, T-Mobile is required to divest the Boost assets and operate a seven-year MVNO agreement with Dish, giving Dish time to build a 5G standalone network. Dish has hired wireless industry veterans to beef up its wireless network ranks and named its first vendor in Mavenir.