Just days after the Department of Justice opened a broad-based inquiry of big tech firm practices, it was announced that the DOJ has helped broker a deal whereby it would approve T-Mobile’s merger with Sprint under a Consent Decree that would enable Dish Network to become a fourth national wireless competitor. Under the terms of the deal, Dish would acquire Sprint’s 9 million prepaid customers for $1.4 billion and its 14 MHz of 800 MHz spectrum for $3.6 billion in three years. Additionally, T-Mobile would be required to offer wholesale services to Dish for seven years.
Dish gets access to up to 20,000 of New T-Mobile’s decommissioned cell sites, and must build 15,000 additional sites, with a commitment to covering 70% of the country with 5G at a minimum speed of 35 Mbps. Importantly, Dish must pay a penalty of $2.2 billion if it does not meet the buildout requirement.
I do find the ‘manufacturing’ of a fourth national wireless competitor in order to get this deal done to be rather curious. To begin with, it is not usual practice for regulators to get involved at this level. It’s a rather sweetheart deal for Dish to get 9 million customers for $1.4 billion ($150/customer) and that amount of attractive low-band spectrum for $3.6 billion, with only a $72 million penalty if they choose not to exercise that option.
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The biggest wildcard here is Dish itself: its capital structure and its real commitment to build a network and be a serious player in the wireless business. It is fair to ask these questions, given Dish’s history of sitting on spectrum, not fulfilling its buildout commitments, and finding creative loopholes around the FCC’s auction intentions.
Those who have been reading my columns in the year+ since the TMO-Sprint deal was originally announced won’t be surprised by my view that the Dish deal notwithstanding, we don’t need four national, facilities-based networks in the United States. I keep coming back to the point that Sprint, as the increasingly distant fourth carrier, has been struggling for years. It’s not all that clear how a Dish wireless business would be more successful than Sprint’s wireless business has been or would be, had Sprint remained as a standalone entity. And the fact is: there are very few examples, worldwide, of countries that have four national, facilities-based wireless competitors who are all healthy and profitable.
The only scenario where I think 4+ makes sense is if there’s a larger addressable market than today’s largely mature market for wireless services. There are two opportunities here: One is whether New T-Mobile, and the other major operators, are able to use their 4G and 5G networks to also offer a competitive alternative to fixed broadband (where most markets have, at best, two competitors), including the ability to provide an effective service to the ~20% of households in the U.S. that are unserved or underserved by broadband today. The other area of new opportunity is in the broader enterprise and industrial IoT sector, which is more complex and will take some time to develop.
I don’t see Dish being successful if it’s just going to rely on being the new ‘uncarrier’ with some disruptive pricing. It must secure an anchor tenant to help fund the buildout of its network (such as Verizon, who might need the capacity), and/or an outside player such as Amazon, who might do something disruptive and not view its wireless business through the same lens and traditional metrics as a traditional operator. That said, if Dish covers substantially less than 70% of the population with its own network, the opportunity for an MVNO tenant to do something disruptive would be diminished, since it’s unlikely that the MVNO would have access to New T-Mobile’s network in areas not covered by Dish.
Risks to the deal
It is also a risk to put this competitive onus on Dish. The company, which has $13 billion of debt, could well struggle to find the estimated $10 billion capital needed to build a full-on wireless network, which would require some 40,000 towers, according to New Street Research. It would clearly need an anchor tenant, and that’s likely to be Amazon, Apple, or one of the big tech firms. Given that the DOJ seems to have an especially keen eye in Big Tech these days, I guess Amazon or whoever that big tech MVNO turns out to be will have to tread somewhat carefully in terms of what wireless service is offered to consumers. So much for free unlimited 5G data for all Prime customers!
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There are still uncertainties as to whether this deal gets done and the timing. In an era where nearly every issue is politicized, the DOJ is, to a certain extent, playing arbiter between several Democrat states that oppose the deal and several Republican states that support it. It appears that the legal challenge will go forward, with a trial scheduled to begin October 7. Any additional delay could provide Dish with the ammunition needed to further push out the buildout requirement associated with its existing spectrum. Certainly, regulators have an eye to Dish’s strategic options and past practices with regard to buildout requirements, given the stipulation that Dish can’t re-sell its wireless assets to a third party for three years.
Another key, unanswered question pertains to the terms of the MVNO deal between New T-Mobile and Dish. Historically in the U.S. wireless market, regulators have not mandated facilities-based operators to offer fair wholesale rates. Hence our rather moribund wireless MVNO/resale market in wireless, and nonexistent resale market in broadband – a sharp contrast to most countries in Europe. We see this in the cable MVNO deal with Verizon, where the prices offered by Xfinity Mobile and Spectrum Mobile to consumers are not especially favorable, and cable companies do everything they can to get data traffic onto Wi-Fi. I guess it’s another irony that the DOJ, which is busy investigating anti-competitive practices by big tech, helps engineer a deal that presumably requires New T-Mobile to offer favorable wholesale rates to Dish.
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Another key element here will be the buildout requirement imposed on Dish. This certainly could be a win for network equipment suppliers, tower companies, and the like. I’d imagine that Dish would initially focus on building out a ‘macro’ network, and use the New T-Mobile network for metro-centric small cell services. Of course, building a wireless network from scratch in the 2020 era is, economically, a lower-cost proposition (see: Reliance Jio, etc.), especially when legacy network equipment and systems don’t have to be supported.
My bottom line: we don’t need a fourth national wireless network if we’ll already have three really good ones. And just because we’ve manufactured a new competitor in order to get the TMO-Sprint deal done does not necessarily guarantee the success of that competitor. I can certainly envision market conditions changing enough between now and 2023 that Dish could use to circumvent or further delay the buildout requirements.
Nevertheless, Dish is an entrepreneurial company, and with attractive wholesale rates from New T-Mobile, there will be some great opportunities for creative partnerships and offers in the near-term. In the longer term, the potential for a greenfield wireless network in the United States is exciting. And Dish being Dish, the road to this network being built, and the resultant service proposition, is likely to be unconventional.
DISCLOSURE: I am not, nor have I been, engaged by any parties in relation to this transaction.
Mark Lowenstein, a leading industry analyst, consultant, and commentator, is managing director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter at @marklowenstein.
Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceWireless staff. They do not represent the opinions of FierceWireless.