Dish Network co-founder and Chairman Charlie Ergen was given the opportunity Tuesday to present his arguments for how his company can and will build out a greenfield 5G network and become a fourth wireless competitor, and analysts say he was a strong witness for hopeful merger partners T-Mobile and Sprint.
The companies are presenting their case this week after much of last week was spent with the 14 opposing state attorneys general (AGs) arguing why the merger should be blocked. Starting late last week, executives from T-Mobile and Sprint took the stand before Ergen, whose testimony is seen as crucial for the companies to show the “fix” is going to offset the harm. Ergen co-founded the satellite TV company Dish and has amassed significant amounts of wireless spectrum over the years.
“We believe the main arguments against the merger's approval are based on whether Dish can become a viable competitor and if the company can build a wireless network,” wrote Oppenheimer analyst Timothy Horan in a note to investors today. “Charlie's testimony positively reinforced that Dish can accomplish both of these.”
The cost to build out a new network has been estimated by Dish at $8 billion to $10 billion. Ergen, who underwent cross-examination by the opposing states today, yesterday revealed that Dish has received high confidence letters of credit for $10 billion each from three separate banks—Morgan Stanley, JP Morgan and Deutsche Bank. Shares in Dish were up 4.2% today.
Ergen ends defense cross on a Lincoln quote about spending a lot of time sharpening your blade before chopping down a bunch of trees.— Walter Piecyk (@WaltLightShed) December 18, 2019
“We have been sharpening our blades for the past 10 years” pic.twitter.com/5FFpJwnG0p
The most exciting data point on Tuesday came when the lawyers were arguing whether certain portions of the testimony should be conducted in open court, according to New Street Research analyst Vivek Stalam. “The defense noted that given questions around DISH’s viability as a 4th, that discussions with ‘very exciting … strategic partners’ needed to be examined confidentially. Elsewhere in the testimony, this topic was broached, though never directly discussed, such as when Ergen mentioned potentially partnering with others outside the industry who may want to bundle wireless with their products.”
Separately, New Street analyst Blair Levin in a note to clients questioned whether the judge will see discussion with potential strategic partners as a game changer or a bluff. The attorney for Deutsche Telecom (DT) said: “Your Honor ought to be aware of some of the discussions they’re (DISH) having with very exciting, very exciting potential strategic partners to work with them and to develop this product in a way that becomes a real serious competitive threat,” according to the note. Dish’s lawyer reportedly described the potential partners as “some of the most successful companies on the planet.”
“We cannot know, nor can we guess what it means to be having ‘discussions,’" Levin wrote. "The big question to us is whether the judge looks at the confidential evidence and sees such discussions as likely to result in an actual deal or whether the evidence is more consistent with, in the words of a DT executive, ‘another one of Charlie Ergen’s stupid bluffs.’ If one believes that the judge is likely to believe the former, the odds of the judge ruling for the companies go up but the value of the sector in terms of market gap would go down. If the judge is not convinced, then the odds are unchanged, or even go down, while the likely impact on the sector is less.”
Reports over the years have speculated that Dish might do a deal with Amazon—the thought being at one point that Amazon might help Dish build an IoT-centric network, or that Dish could offer mobile services to Amazon Prime members for an additional monthly fee. (Dish has since exchanged the IoT network build for the planned 5G greenfield network build.) Google is another big name that could be in the mix, but “we do not know the names, the extent of such discussions nor the terms of such a partnership,” Levin noted.
Ergen reiterated in his testimony Tuesday that Dish would compete with the combined T-Mobile/Sprint entity "from day one.” Dish will obtain 9 million prepaid subscribers from Sprint’s assets and plans to lower prices to retain customers. Through the MVNO with T-Mobile, the company will cover 92-98% of the country and have access to low/mid-band spectrum. “This compares more favorably vs. Sprint that has 79-95% coverage and a swath of legacy network equipment, according to Charlie,” wrote Oppenheimer’s Horan.
Two other examples of successful greenfield wireless builds are serving as a model for Dish: Reliance Jio in India, which began a greenfield network three years ago and now has the most market share, and Rakuten in Japan, which is building the first virtualized 4G network in the industry, Horan noted.
Last week, the presiding judge in the case, Judge Victor Marrero, asked T-Mobile CEO John Legere why Sprint couldn’t do a turnaround like T-Mobile did, and this week he put a similar line of questioning to former Sprint CEO and current Chairman Marcelo Claure.
“As he did with other witnesses, the judge asked Claure ‘If T-Mobile did that (going from weak to strong) over the period of time, why not Sprint? Why does Sprint need a merger in order to turn itself around?’ Claure’s answer started with ‘I have spent countless nights understanding what T-Mobile had done and why we couldn't do the same. It all comes back to one basic thing that is called ‘spectrum,’” Levin noted. “We think the answer was effective though we expect one of the state’s experts to discuss spectrum options that Claure appeared to be dismissing.”
Dish recently hired Stephen Bye, formerly with C-Spire and Sprint, and former Nokia executive Marc Rouanne to help build out its network. But with the MVNO deal in place, Dish will be able to offer a wireless service within 30 days of the closing of the T-Mobile transaction, according to Ergen. A “monitor” is being put in place—former Facebook general counsel Ted Ullyot—to make sure the companies adhere to terms of the deal.