Dish Network co-founder and Chairman Charlie Ergen avoided handing states a clear win as they challenged his credibility and that of Dish as a wireless competitor this week during Sprint and T-Mobile’s merger trial.
Analysts attending the trial indicated Ergen held strong while state attorneys general (AGs) suing to block T-Mobile from acquiring Sprint took aim at previous issues involving the Federal Communications Commission (FCC) and questioned text messages from the antitrust division chief of the U.S. Department of Justice.
“Many investors believe that the case hinges on Charlie Ergen’s ability to establish himself and Dish as a viable and credible fourth wireless competitor,” wrote Walter Piecyk and Joe Galone of LightShed Partners in a Thursday note. “We believe he did that yesterday under cross examination.”
In quick takeaways after Wednesday’s proceedings, New Street Research analyst Vivek Stalam wrote that “Ergen was able to explain his side on most of the issues clearly” despite the states painting him and Dish in a negative light.
According to LightShed, Ergen was successful in drawing parallels of building a satellite TV business from scratch to entering the wireless market, beating back depictions that he’s merely a spectator. Dish has a large swath of spectrum holdings and before the merger-related agreements to become a fourth wireless competitor, the company faced tight FCC buildout deadlines to put certain licenses to use or lose them.
In comments ahead of the trial, Paula Blizzard, California deputy attorney general, said “Sprint has over 40 million wireless customers. Dish has none – no history in the industry, and no retail wireless network. We cannot count on Dish one day in the future somehow growing into a viable wireless company equal to Sprint’s reach today.”
Ergen was frank when Judge Victor Marrero questioned Dish’s early opposition to the deal before conditions involving Dish as a new wireless entrant were added, according to analysts. He admitted that Dish was concerned with consumer prices going up if the market consolidated from four to three based on its own economic analysis.
New Street categorized this as a negative data point for the companies’ case, but LightShed Partners noted that if Ergen soft-sold his answer, AGs could have turned around and pointed to the studies from Dish economists.
“The AGs’ own economists, in earlier testimony, acknowledged that prices might not go up due to consolidation, rather prices would just not go down as much,” added the LightShed analysts.
The LightShed team said state AGs focused on “broken promises” by Ergen involving the FCC, but noted it's an agency that importantly, has already “endorsed him as a viable fourth wireless competitor to the market.”
The FCC officially signed off on the merger in October but faced some criticism about transparency during the approval process, including from dissenting FCC Commissioners Jessica Rosenworcel and Geoffrey Starks. Just this week, Democratic lawmakers sent a letter to Chairman Ajit Pai questioning if proper procedure was followed and why the transaction wasn’t opened to public comment over new agreements for the DoJ’s consent decree.
In terms of playing politics, New Street noted Wednesday’s proceedings involved “political intrigue that didn’t quite land for the states.”
During the trial, state AGs displayed a June text message from the DoJ’s antitrust chief Makan Delrahim (a President Trump appointee) to Ergen that said: “Today would be a good day to have your Senator friends contact the chairman,” referring to Pai, a day prior to states filing their lawsuit against the merger, according to Reuters. Ergen said he later spoke to Colorado Senator Cory Gardner and Senate majority leader Mitch McConnell, acknowledging he asked Gardner to speak with Pai, but did not remember asking McConnell to contact anyone, Reuters reported.
According to New Street, when pressed on why the DoJ asked him to apply pressure through his Senate connections, Ergen pointed to deposition testimony, essentially explaining that he spoke to senators to explain 5G to the FCC.
The judge, however, shot down questioning about Delrahim texting Ergen his personal contact information, as well as questions about Delrahim’s earlier and unsuccessful effort to block the AT&T/Time Warner merger, according to LightShed.
“If this is a trial about two federal agencies (and their lifetime staffers) not doing their job, that argument does not appear to be resonating with the Judge,” wrote Piecyk and Galone. "In fact, based on testimony over the past few days, it appears that Delrahim actually substantially improved the conditions that Dish had agreed to with T-Mobile on two key MVNO terms.”
The trial could wrap up as soon as tomorrow, or potentially continue into Saturday, with a decision expected sometime in February. In a case that has seen many twists and turns, whether T-Mobile will ultimately succeed in purchasing Sprint remains unknown, but LightShed Partners acknowledged the firm’s “optimism continues to grow” that T-Mobile will win.
“In fact, the more we learn about Dish’s deal via testimony and exhibits at this trial, the more we have grown concerned about increased wireless competition in the United States,” wrote LightShed. “To that end, we believe T-Mobile investors should be pressuring the board to improve the terms of its deal with Sprint.”