Dish Network is nearing an agreement to pay $5 billion for spectrum and prepaid mobile assets, which will clear the way for the Justice Department to approve the $26.5 billion merger between T-Mobile US and Sprint, reports Bloomberg.
According to un-named Bloomberg sources, Dish has agreed to pay about $1.5 billion for prepaid mobile assets. It’s assumed this would be the business from Boost Mobile. In addition, Dish would pay about $3.5 billion for additional spectrum. Dish would also get a seven-year wholesale agreement to use the New T-Mobile network while it builds dedicated infrastructure.
To satisfy concerns of T-Mobile’s and Sprint’s parent companies, Dish won’t be able to re-sell its wireless assets to a third party for three years, according to Bloomberg's sources. There had been reports that T-Mobile’s parent company Deutsche Telekom would completely nix its merger aspirations if there was a chance Dish would partner with a deep pocket such as Amazon or Comcast.
MoffettNathanson analyst Craig Moffett had said if Dish secured a spectrum hosting agreement, even without a follow-on Dish deal with Amazon, Google or a cable operator,it would be worse than a no-deal scenario for T-Mobile because it could introduce a "disruptive discounter" into the U.S. market.
It’s anticipated that the arrangement with Dish now clears the way for the Department of Justice to approve the Sprint merger with T-Mobile, possibly this week.
T-Mobile has scheduled its second quarter earnings call for tomorrow afternoon. It’s expected that the company will confirm its previous claim that the merger with Sprint will generate about $43 billion in savings, and that those savings won’t be reduced by the asset sale to Dish.
From Dish’s perspective, this deal gives it additional spectrum to add to the spectrum it already has.
“It's a win for Dish, because they get additional spectrum, plus customers, plus a likely delay in their buildout requirement — especially if the case is still litigated by the states,” said Mobile Ecosystem analyst Mark Lowenstein in an email to FierceWireless. “One key question is what the terms of the MVNO deal with T-Mobile are, in terms of wholesale rates. If Dish is going to be successful, those wholesale rates have to be aggressive, especially with the amount of data that will be used for this primarily 5G network. This has been a big issue historically in the rather challenged U.S. MVNO market, as wholesale rates offered by U.S. operators have not been favorable.”
Four US Carriers
Federal Communications Commission Chairman Ajit Pai endorsed the proposed merger in May with the conditions that Sprint and T-Mobile commit to not raise prices, to sell off Sprint’s Boost Mobile brand, and to build out 5G in rural areas within three years of closing the merger. The FCC has yet to vote on approval of the merger.
The Justice Department has held off on its approval of the merger, reportedly concerned that it would diminish competition in the U.S. wireless market. But with the prospect of Dish as a fourth wireless carrier, those DOJ concerns may be allayed. Together, T-Mobile and Sprint would create a wireless company with more than 130 million subscribers, closing the gap with Verizon and AT&T, which each count more than 150 million subscribers.
But will Dish be able to effectively compete as a fourth wireless carrier?
“The company has $13 billion of debt and does not have the capital to build a full-on 5G network,” said Lowenstein. “It will need a solid anchor tenant, such as Amazon, Google, Apple, etc., and other sources of capital. Certainly they can be a wholesale provider from day one under the terms of what has been reported, but I'd imagine there will be some sort of commitment by Dish to build out a physical network of some sort, although they are not well-capitalized to do so and have a history of under-fulfilling this commitment.”
Even if the DOJ gives the merger its approval, T-Mobile and Sprint still face a legal challenge by a group of state attorneys general that have filed a lawsuit to block the merger based on antitrust concerns. The states are seeking to delay the start of the trial date, which is scheduled for October 7.