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Dish Networks Gets a Bone in Sprint, T-Mobile Merger OK: Page 2 of 2

And Dish Makes Four
So the other key provision of the merger agreement mandates that Sprint will have to sell its 14 MHz of spectrum holdings in the 800-MHz band (i.e., the Nextel spectrum) to Dish for $3.6 billion. The idea is that Dish could use that spectrum, along with its existing AWS-4 spectrum holdings, to build a network and become the fourth nationwide cellular carrier. With this scenario, Dish summarily terminated its NB-IoT plans.
 
The DoJ requires that this new network cover 20% of the U.S. population by 2020 and 70% by 2023 -- I guess 2022 will be a busy year for Dish as it rolls out a network to cover 50% of the U.S. population. To smooth the transition, Dish will start as a T-Mobile mobile virtual network operator, or MVNO, with a guarantee of access to the new T-Mobile’s network for seven years.
 
To hit that first 20%, Dish will clearly have to target major metro areas, which will gain it coverage of a lot of population with a minimal number of cell sites. Of course, Dish has no staff, no expertise, no army of workers, no support systems, or anything else you’d need to build a cellular network, so clearly it’ll be leaning on outside contractors to get this built. And all of that assumes that Dish can come up with the billions in capital it will require to pull this off.
 
However, even with outside help, the prospect of actually delivering on the promise to cover 70% of the U.S. population with a cellular network in that timeframe is about as realistic as saying we’ll do a manned mission to Mars the week after next.
 
The great thing is that Ergen has an easy out: Dish’s penalty for walking away is only $2.2 billion. That means Dish could get to acquire that 800-MHz Sprint spectrum for what amounts to total of $5.8 billion, not build anything, and maybe it could even get the FCC to reset that use ‘em or lose ‘em clock on its spectrum holdings.
 
Can DoJ Sell the Sham?
While the infeasibility of the Dish proposal was obvious to anyone who’s worked in the cellular business, apparently the hope was that no one else, particularly those pesky AGs, would notice. Unfortunately, the opposition may have caught wind of the ruse.
 
Last Friday, shortly after the DoJ made its decision public, I listened in on a conference call sponsored by Public Knowledge, the Rural Wireless Association, the Communications Workers of America, and the Consumer’s Union, all of which are still pushing for the AGs to continue their actions against the merger. In short, they still support the fallacy that four carriers are necessary, and Dish doesn’t measure up. In other words, they haven’t fallen for the ruse of Dish as a viable fourth carrier option.
 
While I do agree with the opponents that the whole Dish scheme is a sham, I see the benefit of a strong, viable third carrier as vastly superior to the prospect of driving Sprint out of business. Let’s face it, cellular has turned into a crappy utility business. The carriers are facing a saturated primary market (smartphones) and new revenue streams like IoT are still speculative and will likely not achieve the rosiness projected. In the meantime, the picture for the cellular carriers looks like continued price wars (among either three or four carriers), diversification outside the cellular business by the majors, and industry consolidation among the rest.
 
Can T-Mobile Win Out?
Assuming T-Mobile can sell the sham about Dish’s prospects as a viable fourth carrier, the new venture still isn’t out of the woods. As I noted at the outset, on paper the Sprint, T-Mobile combination has a lot going for it, and would allow the two smaller operators to amass a subscriber base of roughly 90 million customers. This would put the combined company in the same class as Verizon and AT&T, with about 100 million subscribers each.
 
Further, while the cutthroat pricing competition will undoubtedly continue, the energy created by the new combination and the industry-wide excitement surrounding the migration to 5G could spur a resurgence in the wireless industry. However, the new T-Mobile’s management will have to perform.
 
The first question will be leadership, and when it comes to defining the post-merger management team, it’s typically “to the victor belongs the spoils.” That could spell a big problem and a major culture clash.
 
T-Mobile has been primarily a consumer provider; up until a few years ago, T-Mobile wasn’t even an option business buyers would consider. Sprint has far more impressive credentials in the business market, as well as a wireline network on which to build a next-generation set of enterprise offerings. Of course, T-Mobile has never had a wireline operation, and might not recognize the potential synergies to be exploited, although it has gone on record with its intent of keeping the wireline operation post-merger.
 
From my own dealings with the two companies, I find significant differences in culture. Sprint is far more influenced by its “traditional carrier” underpinnings in the face of T-Mobile’s aggressive un-carrier philosophy.
 
Other challenges will come in integrating the two radio access networks, mobile switching centers/central offices, backhaul facilities, back-office systems, retail locations, and lord knows what else. You might recall that Sprint’s abysmal attempt to integrate its Nextel acquisition was one of the key failures that put it on the road to ruin.
 
So even as the merger moves forward tentatively, the new T-Mobile still has to clear a gauntlet of challenges.
 
Conclusion
After all the BS and posturing, there is one very simple reason the Sprint, T-Mobile combination should go through: A reliable wireless infrastructure is critically important to the future of our country. This isn’t about shaving a few more nickels off my unlimited data plan but rather about calling the cops and the fire department.
 
The wireline telephone is a vestige of another era. According to the FCC, 70% to 80% of 911 calls originate on cell phones -- that’s probably why the CTIA reports that 80% of American consumers think wireless service is indispensable. In natural disasters, particularly when people are displaced from their homes, cell phones are now the only way we have to communicate.
 
What the critics have failed to recognize is that while the “wireless industry” is thriving, the vast majority of those profits are going to the devices and applications, not the carriers. Yeah, Apple, Google, Facebook, Amazon, etc. are rolling in dough, but that doesn’t trickle down to the boring (well, not boring to me) infrastructure stuff that makes this whole new way of living feasible.
 
However, the country has passed the point of no return with wireless. We need it, and it has to work reliably because people’s lives now depend on it. We’re in an international battle with regard to wireless, and a crippled Sprint isn’t an asset in that competition. So if someone wants to have a philosophical discussion about the optimal number of competitors, please do it in an area where your mistakes won’t do as much harm.