T-Mobile/Sprint case boils down to Dish fix - analyst

Dish Wireless
The deal calls for Dish to acquire Sprint’s prepaid assets and 850 MHz spectrum, and entering into an MVNO agreement with T-Mobile as the company builds its own wireless infrastructure. (Dish)

Now that lawyers for both sides in the T-Mobile/Sprint merger trial have given their closing arguments, the decision will ultimately depend on how the judge views the Dish Network fix, according to analysts who have been following the trial. 

T-Mobile's merger with Sprint received conditional approvals from the Federal Communications Commission (FCC) and the U.S. Department of Justice (DoJ), but the attorneys general from 14 states sued to block the deal, arguing that it's anti-competitive. 

T-Mobile CEO John Legere, who leaves his role this spring, told Fox Business that he was feeling “very confident” after the closing arguments on Wednesday. Both he and former Sprint CEO Marcelo Claure said they will have to wait for the final word, but Claure said they hope a decision happens as soon as possible.

The final arguments came after two weeks of testimony in December where economists and executives from the companies took the stand, including Dish Chairman Charlie Ergen, who discussed his plans for establishing a fourth facilities-based operator. Under the plan approved by the DoJ, Dish would use T-Mobile’s network as an MVNO while it builds out its own 5G network, which is expected to cost less due in part to the virtualized nature of it.

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New Street analysts attended the closing arguments in hopes of discerning through Judge Victor Marrero’s questions both his leanings and his concerns about the arguments on both sides. But the judge asked zero questions during the four hours of arguments. The analysts have been predicting that the states will win, and Wednesday’s presentations did not change that view, although it remains close.

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“While we think the decision will ultimately depend on how the judge views the DISH fix, most of the arguments were about other issues, such as market definitions, efficiencies, and who has various burdens of proof,” wrote New Street’s Blair Levin in a note for investors. “There was also a lot of discussion of a non-public session in which Ergen discussed the DISH business plan and potential strategic partners, which is a wild card in our analysis, as it could prove important but we have no way to know what really happened. The lawyers for both sides cited metaphors the judge mentioned during the trial.”

Those metaphors include “flower child” and “Rocky,” both referring to T-Mobile. At one point in the trial, the judge asked if it were possible that T-Mobile might be like the '60s flower child who turned into an investment banker, a metaphor raised again by the states’ lawyer. At another point in the trial, Levin wrote, the judge suggested that maybe T-Mobile would be like Rocky, causing the companies’ lawyer to comment that “T-Mobile is becoming Rocky and stepping into the ring with its larger competitors and developing a new punch.”

Last week, both sides presented their proposed findings of fact and during the closing arguments, they largely stayed within those frameworks, according to Levin, who concluded after reading the findings that they will make it easier for the judge to rule for the states and harder to rule for the companies.

However, it’s been a close case and analysts Walter Piecyk and Joe Galone of LightShed Partners said earlier this week that a ruling in favor of the state AGs would be “remarkable,” given the arguments that they observed over the two-week trial and because it would effectively reverse the work of 40 DoJ staffers, 54 FCC staffers and the approval of two federal agencies.

Of course, top of mind is what happens to Sprint if the deal isn’t approved. “It’s increasingly questionable whether Sprint has any equity value as a standalone company,” the LightShed analysts wrote. “In addition, we believe it’s highly unlikely that Comcast or Charter are interested in Sprint given its cash burn and current debt load. Court testimony demonstrated their lack of interest in buying Sprint in 2017 and we do not think that has changed.”

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The states fighting the merger, which are all led by Democratic AGs, insist that Sprint is a better competitor than what Dish would offer.

California Attorney General Xavier Becerra, who is leading the charge against the companies with New York Attorney General Letitia James, issued the following statement on Wednesday: “There should be no question now: this attempted megamerger would thwart competition in the telecom market and harm consumers from California to New York, and everywhere in between. At trial, we have repeatedly demonstrated the dramatically increased market concentration that would result if T-Mobile and Sprint were to merge.”

Right now, Sprint and T-Mobile compete intensely with each other on price, features and quality, he added. “That's competition we can't afford to lose. The costs to consumers and our economy would be palpable. Our coalition of 14 state attorneys general stands strongly opposed to the megamerger for the sake of protecting choice and competition for all Americans, and we’re confident the law is on our side,” he said.

The judge promised a decision as promptly as possible, which is widely expected to happen in February. Given statements made Wednesday and lack of questions from the judge, that suggests the judge knows how he wants to write the decision and that it probably will be issued in four to six weeks, putting it at the back end of February, Levin said, adding, however, that timeline is fairly quick for a decision of this magnitude.