FCC releases order approving T-Mobile/Sprint merger, modifying Dish deadlines

FCC 2019
The FCC order spells out why the agency believes the T-Mobile/Sprint transaction is in the public interest. (FCC)

In connection with the release today of the Federal Communications Commission’s order conditionally approving the T-Mobile/Sprint merger, the agency said it also proposed—subject to conditions—modifications to construction deadlines related to Dish Network licenses. 

The FCC’s approval wasn’t a surprise—the agency already voted 3-2 to OK the deal, but it had not yet released the full report (PDF) explaining its reasoning until today. The modifications to Dish’s construction requirements, which are connected to its spectrum licenses, also were not unexpected, but the order makes it official. That is, as official as it gets until the states’ attempt to block the deal via court is decided.

In its order, the FCC said the proposed Dish construction deadline modifications would facilitate the implementation of certain measures in the Department of Justice’s consent decree in connection with the transaction that was announced in July, where Dish pledged to become a new entrant in the wireless industry.

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Dish has pledged to deploy 5G service on its AWS-4, lower 700 MHz E Block and AWS H Block licenses to at least 70% of the U.S. population by June 14, 2023, with download speeds of at least 35 Mbps to at least 70% of the U.S. population—as verified by a drive test.

According to its order, the FCC found it would be inappropriate to hold Dish to its March 7, 2020, construction deadlines for its AWS-4 and lower 700 MHz E Block licenses and the current March 7, 2020, expiration date of its lower 700 MHz E Block licenses given the status of proceedings. Should the proposed transaction between T-Mobile and Sprint not occur, it anticipates that the Wireless Telecommunications Bureau (WTB) would deny the pending Dish requests for extension of the construction deadlines for the AWS-4, lower 700 MHz E Block, and AWS H Block licenses and decide not to modify the those licenses.

Dish was building out a Narrowband IoT (NB-IoT) network but switched course to start the process of building a 5G network as a result of the DoJ deal. Last month, Dish announced it was releasing its third RFP for a nationwide greenfield 5G network. 

“The framework established by the FCC will facilitate and accelerate Dish’s entry as a new nationwide facilities-based provider,” said Jeff Blum, Dish SVP of Public Policy and Government Affairs, in a statement today. “Our goal is to spur competition and drive America’s leadership in 5G, all to the benefit of American consumers and industry. We share the Commission’s 5G goals and are prepared to transform the U.S. wireless market by building the nation’s first virtualized standalone 5G network. This will spark investment, deliver value to consumers and enable the technologies of tomorrow.”

Of course, the two dissenting commissioners, Democrats Jessica Rosenworcel and Geoffrey Starks, are not so sure about that. Under the DoJ settlement agreement, Dish initially will enter the market as a mobile virtual network operator (MVNO) reselling prepaid wireless service before it’s a facilities-based provider.  

“As numerous parties have noted, Dish might be better off sticking to operation as a mobile virtual network operator,” Rosenworcel said in part of her statement. “Under these circumstances the company would simply profit from whatever arbitrage opportunity is handed to them via a regulated resale agreement and then sell its spectrum at a later date instead of investing billions to compete with the largest operators and building a facilities-based 5G network from scratch. In fact, nothing prevents Dish from taking this route, save for a $2.2 billion financial penalty that is laid out in a letter to the FCC. But that penalty may just be the cost of doing business. After all, the penalty sounds de minimis when compared to the upwards of $10 billion Dish projects it will need to fully build out this network.”

In terms of the divestiture of Boost to Dish, Starks said that does little to address the harmful effects of the proposed merger. For one, Boost will be an MVNO, wholly dependent on New T-Mobile’s spectrum and network, making it a weak check on anticompetitive behavior. For another, Boost Mobile will not even be a strong MVNO. With 9 million customers, it's not even the largest prepaid brand involved in the transaction—T-Mobile’s Metro business has more than twice as many customers.

Pro-deal

On the “pro” side of the deal, FCC Chairman Ajit Pai said the New T-Mobile will be far better positioned to deploy Sprint’s extensive 2.5 GHz spectrum holdings than would Sprint standing alone, given the company’s financial situation, and for rural America, it will help close the digital divide.

New T-Mobile’s 5G network will see 85% of rural Americans covered within three years and 90% covered within six years. “Moreover, its network will cover at least two-thirds of our nation’s rural population with high-speed, mid-band 5G, which would strengthen our overall economy and improve the quality of life in many small towns across the country,” he said.

Commissioner Michael O’Rielly said having a third, strong nationwide wireless competitor that is capable of more effectively competing with the two market leaders is in the public interest. “For this reason and others, I am skeptical about whether the conditions imposed are absolutely necessary,” he said. “The presence of AT&T and Verizon will act as a constraint on T-Mobile’s ability to change its rates drastically. Further, there are other offerings, including other MVNOs and the entry of cable companies into the wireless space, that will also constrain pricing in urban markets. To the extent the merged company steps away from what the market will support, it merely invites new and expanded competitors to out-maverick it.”

Commissioner Brendan Carr said the divestiture of Boost to Dish will mean the new company will have best-in-class access to new T-Mobile’s network—a far improved experience over Boost’s current access to Sprint’s network. Dish also has a deep spectrum portfolio that lies fallow, and its plan absent the Boost transaction was to use a small fraction of its capacity, in what some criticized as a “save build” aimed only at trying to preserve its licenses.

Dish’s more robust build commitments made as a condition of the transaction would put more spectrum to work, increase capacity, and put additional downward pressure on wireless prices, he said. “We also require that new T-Mobile keep the existing companies’ rate plans for three years. That period is significant because it spans the time it will take the new company to integrate the networks and realize the major capacity expansion that will naturally push down prices,” he added.

All eyes on states

Opponents to the merger are looking to the states to prevail in their court challenge. The attorneys general from 15 states and the District of Columbia are suing to halt the transaction; that trial begins Dec. 9.

Debbie Goldman, Research and Telecommunications Policy Director for the Communications Workers of America (CWA), said the divestiture deal with Dish fails to resolve the anti-competitive harms, as it simply creates Dish as T-Mobile’s largest customer, not a true competitor in the marketplace. 

“Sprint is a significantly stronger competitor today than Dish Network is likely to be for the foreseeable future,” said Public Knowledge Policy Director Phillip Berenbroick. “The struggles that Dish Network and other would-be new entrants in the wireless market consistently face demonstrate that nothing is certain — even when a company has the best of intentions to enter a market and compete. Consumers will face considerable harm if the marketplace does not develop as the FCC and DoJ envision.”

New Street Research analysts told investors in a Nov. 3 report that they didn’t think the FCC’s order this week would have a significant influence in the states' trial but that it may provide a good preview of the arguments the parties are likely to raise in the trial.

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