It’s not official, but it feels real. After months of speculation, Bloomberg Asia is reporting that Dish Network has agreed to buy wireless assets from T-Mobile and Sprint in a $5 billion deal creating a fourth carrier designed to convince the U.S. Department of Justice (DoJ) to bless the merger of the mobile phone carriers.
It’s not the final step before the merger of T-Mobile and Sprint becomes a reality, but it would appear to be a big one. The DoJ must still okay the merger and the states would have to withdraw their lawsuit. Then we can go back to the full-time task of wondering what Charlie Ergen will do next.
Dish would pay $1.5 billion to receive several prepaid mobile businesses and $3.5 billion for spectrum. In return, according to Bloomberg, the satellite TV provider would receive a seven-year wholesale agreement allowing it to sell T-Mobile wireless service under its brand and a three-year service agreement from T-Mobile to provide operational support.
Solving one of the final reported sticking points, Dish will not be allowed to sell the assets or hand over control of the agreement to a third party for three years, Bloomberg reported.
One of the reasons this year-plus roller coaster of negotiations feels like it is coming to an end stems from reports last week that the DoJ said it would oppose the merger, if T-Mobile and Sprint had did not finalize their deal with Dish within a week. A deadline! Who knew that would work?
New Street Research summarized what Dish will receive: 9 million prepaid subs, mobile virtual network operator (MVNO) status for 7 years, 14 megahertz of 800 MHz band spectrum and eSIM support. The firm also reported that there would be two payments: $1.4 billion now for prepaid subs and then $3.6 billion in three years for spectrum when it has been cleared.
What about Charter?
Adding another wrinkle to the story, Reuters reported that the Justice Department did not reply to Charter Communications’ proposal to buy the carriers’ telecom assets.
“The Justice Department’s lack of response to Charter could raise concerns among critics of the $26.5 billion merger of wireless carriers T-Mobile and Sprint that officials did not weigh all divestiture offers before deciding on a deal with Dish,” Reuters wrote.
And don’t forget about the lawsuit from several state attorneys general, which is attempting to block the T-Mobile/Sprint merger.
“The merger of T-Mobile and Sprint would stifle competition, cut jobs and harm vulnerable consumers from across the country, so unity among the states will be key in defending our citizens against this power-hungry corporate union,” said New York Attorney General Letitia James. It is not known whether the Dish deal would pacify the state attorney general.
Can Dish Make It as a National Carrier?
New Street Research has published analysis that shows Dish would be a disruptor in the wireless business.
“Dish has a path to an attractive wireless business on their own; one that would result in a value well above where the stock is trading today,” the analysis reads. “If they can secure a network hosting deal with T-Mobile, the business would be more valuable still. We worked with network engineers to determine what it would cost Dish to build and operate a new 5G network. We show that, once fully loaded, Dish would have a lower cost per unit of capacity than any of the four national carriers today. This gives Dish the ability to price aggressively, to fill the network swiftly, and to create tremendous value for themselves at the expense of the existing carriers.”
The news of the breakthrough that may advance the merger was welcome for the wireless industry, but unfortunately, it raises more questions than it answers. Will Dish continue to build out its license-saving internet-of-things network? The DoJ most likely will give it an extension to keep the millions of dollars of spectrum it has accrued.
“The broader question is what will they build and when will they build it?” asked Alex Gellman, CEO and cofounder of Vertical Bridge. “Will they build a 5G network and start transitioning the MVNO customers over? It makes sense if they have the freedom to figure out where most of the traffic is and can start picking off the hottest spots with their own proprietary infrastructure.” Comcast and Charter do not have the right to build their own cores as part of their MVNO deals with Verizon.
Perhaps the biggest questions that need to be answered, according to Gellman, is who does Dish partner with and when? “How quickly does Dish partner with someone to build the new network?” he asked. “Does that partner bring customers, capital or the ability to build? That is the wild card.”
But don’t hold your breath. Gellman said he believes Dish will take its time finding a partner and developing a build strategy. “They will take a measured approach,” he said. “They will get to know the Boost customers and they have seven years to use T-Mobile’s network. One thing is for sure, this deal cements the existence of a fourth carrier. Dish can no longer sell its spectrum to AT&T, Verizon or T-Mobile.
Dish Network may be the lucky fourth carrier needed for U.S. Justice Department approval of the Sprint/T-Mobile merger, according reports by the Wall Street Journal and Reuters. The announcement may come as soon as this week. Charlie Ergen has spoken about the importance of being at the inflection point of a technology change. It appears that DISH may also be at the right place at the right time.
“Dish Network is leading the race to scoop up assets that the Justice Department says Sprint Corp. and T-Mobile US must sell to save their $26 billion merger,” according to the WSJ.
The Reuters news service based its report on meetings between Dish Network Corp executives and the DoJ and the FCC. Additionally, in a federal filing, Dish explained “the need for a minimum of four nationwide mobile network operators.”
Also in the running for role of fourth wireless competitor are Altice USA and Charter Communications.
States’ Complaint Still in Play
Remember the states’ lawsuit? Jennifer Fritzsche, Wells Fargo senior analyst, said, with the states worried about a loss in competition, a fourth carrier could impress them.
“Some believe that if the DoJ approves the deal – with significant concessions that may include the creation of new national carrier – this lessens (kills?) the States’ argument that this merger will hurt competition,” she wrote in an Equity Note.
Judge Victor Marrero, U.S. District Court for the Southern District of New York, has been chosen to preside of the case. He doesn’t reportedly have a notable history of anti-trust opinions, Blair Levin, New Street Research, says he may be good for the states’ side.
“We think, however, that as a Clinton appointee, and as a person who worked in both local and state government, he is less likely to simply accept any argument from the Trump DOJ as gospel on antitrust economic analysis than other judges might,” Levin wrote in an NSR Policy note.
Stories about this on-again – off-again merger are rolling off the digital presses almost on a daily basis. As new developments emerge, such as the recent slew of suits by nearly a dozen states, one has to wonder just how this, coupled with the rest of the realities of 5G, this is going to play out in the ecosystem.
This saga, no matter how it plays out, will not likely have a direct impact on the rollout of 5G. However, the dance finale will certainly be something to behold, however it goes. For the record, I have been of the opinion that the merger will happen.
As if, the recent 5G “deployments” have not had enough disappointments. The one thing that the merger had going for it was the ability to marshal each organization’s strong suits into a really bleeding edge network. However, it is being discovered that what they’ve said they can do may be way overstated. That is why New York, and some other states, are crying foul.
Nevertheless, and all that aside, what are the real issues here. Is it a contraction of competition as the DoJ claims? I am not so sure of that. Why? Because there is no real evidence that three versus four major telecom players will change the competitive landscape all that much. While I have my opinions, as does everyone else, a recent post by an industry analyst, Kyung Mun of Mobile Experts, bring up some interesting observations. He talks about the “The Rule of Three and Four,” a business theory that hypothesizes that a competitive industry finds an equilibrium when the market shares of three competitors reach a ratio of 4:2:1. He wrote a very elegant thesis around this to make the case that the merger should happen and to explain competitive industry dynamics of why.
A year later, (a couple of weeks ago) as the T-Mo/Sprint saga drags on, he, again, wrote another elegant piece raising some very pertinent questions about why analytics sometime fail. While his missive is very well supported by analytics, I believe tried and true analytical models and algorithms, in this political environment, are not as rock solid as they once were. When you have the kind of political hip-shooting as exists in the present administration, one has to sit back and take a broader look at the ecosystem. There are peripheral factors at play in such an environment.
It appears that the DoJ, IMHO, has some political motivation behind its direction. I believe the litigating states do, as well. It is not about competition; it is about the administration’s desire to maintain the façade that it is about jobs. To wit, this is a statement made by New York’s Attorney General Letitia James. “This is exactly the sort of consumer-harming, job-killing megamerger our antitrust laws were designed to prevent.” She goes on to say that “When it comes to corporate power, bigger isn’t always better. The T-Mobile and Sprint merger would not only cause irreparable harm to mobile subscribers nationwide by cutting access to affordable, reliable wireless service for millions of Americans, but would particularly affect lower-income and minority communities here in New York and in urban areas across the country.”
Oh really? And where does she get her facts? No one knows, precisely, what the end result of the merger will be. Will there be job losses? – of course. However, there will also be new jobs created by the merger. The loss/gain scenario exists whenever companies merge. In addition, I wonder why she did not mention what will happen to Sprint jobs if it goes out of business – will there be no job losses? If one wants to talk about job loss, look to AI. While everyone treads lightly around AI killing jobs, it is a given that will happen. A quick search of the topic will find any number of articles supporting this case.
Next, let us talk about competition. As much visibility as the two companies will be under after the merger (and the other two, as well), it really seems like political suicide to raise prices for what already exists. 5G is another story but so far, no high-value use cases are showing up. Frankly, I believe that the melding of T-Mo and Sprint will bring a stronger player to the market, actually increasing price pressure on the other two.
One point that does have merit is that one of the attorneys general investigation into the merger found that many of the claimed benefits were unverifiable and were theoretical services yet to be developed. The reference is to speed and deploy-ability. However, that metric applies to all carriers so that should be a moot point. Every carrier is promising embellished services and exaggerated performance.
I am not the only one who does not understand this team blocking by the government (remember Trumps spat with Legere and Trump calling T-Mo service terrible). I believe this is more political than economic. For that matter, so does wireless analyst Mark Lowenstein. He says he cannot see the downside to this merger. He supports his position with a number of good arguments, none of which I have room to pen here but they are easy to find.
In addition, do not forget there are other players eyeing the wireless market. Charlie Ergen’s DISH Network has spent billions of dollars amassing spectrum and it owns enough of it to build a 5G network. Plus, there is Amazon, Google and others with skin in the game.
Finally, why all this attention to wireless? There are so many other industry segments that just scream antitrust – airlines, cable, online advertising, ticketing services…the list goes on. For some reason, this has become the Oprah show of the year. I think the DoJ and suing states need to go back and reexamine their motives, and come back apolitical.
The Sprint/T-Mobile merger had appeared to be sailing through judicial and FCC review. Now, however, with the Democrats taking over the House, Congress is exercising its oversight role. Energy and Commerce and Judiciary Committees plan to hold a joint hearing on the merger on Feb. 13 to exam the merger’s potential impacts on consumers, workers and the wireless industry.
“A merger between T-Mobile and Sprint would combine two of the four largest wireless carriers and the carriers with the largest numbers of low-income customers,” said Energy and Commerce Chairman Frank Pallone, Jr. (D-NJ).
While the complete list of hearing participants is still being confirmed, T-Mobile CEO John Legere and Sprint Executive Chairman Marcelo Claure have both agreed to testify.
This will be the first merger review hearing before the Energy and Commerce Committee in more than eight years—the last time Democrats held the majority in the House of Representatives.
“As the committees with oversight of the FCC and Department of Justice, we must hold this hearing to examine the effects on important issues like jobs, costs to consumers, innovation and competition,” Pallone said. “We look forward to examining this merger from the perspective of what is in the best interest of consumers and hardworking people.”
The merger was expected to close at the end of the second quarter of this year with the completion of reviews by U.S. Department of Justice and the FCC. There certainly may be conditions placed not the merger by those two agencies, if they approve it.
“Regarding the Sprint/T-Mobile merger, one sticking point was Deutsche Telekom [owner of T-Mobile] punting on Huawei as a condition. Softbank is already replacing them in Japan. Not sure how real this issue was. If this is a must have and DT won’t play, then the deal may be shot down,” said Earl Lum, analyst, EJL Research. “Any hearing is never good if it goes south so will need to wait and see what they say or DON’T say. I have to assume some spectrum will be given back as part of the deal.”
Calls for Merger Hearing Echoed in the Senate
Hearings may also be held on the Senate side. Senate Commerce, Science and Transportation Committee Chairman Roger Wicker (R- Miss.) and Ranking Member Maria Cantwell (D-Wash.) were urged schedule a hearing on the proposed merger in a letter by Senators Edward Markey (D-Mass.), Amy Klobuchar (D-Minn.), Tom Udall (D-N.M.), Tammy Baldwin (D-Wisc.), and Richard Blumenthal (D-Conn.), all members of the committee.
“The merger of T-Mobile and Sprint would reduce the number of nationwide wireless carriers from four to three,” according to the letter. “This reduction in competition raises a number of important questions that the committee should address.” The letter went on to note the possibility of harmful repercussions, such as “higher prices, fewer choices and less flexibility in switching carriers.”
The Senators went on to demand scrutiny of the 5G claims of T-Mobile and Sprint. “T-Mobile and Sprint have argued that their merger is necessary for successful deployment of a robust nationwide 5G network, despite previous individual assertions by each company made prior to the merger boasting of their own progress building towards 5G.”
T-Mobile, Sprint, if Joined, to Build 5 ‘Customer Experience Centers’
In what will certainly be a talking point during the hearings, T-Mobile and Sprint have announced that, upon the merger, they plan to build five new “Customer Experience Centers” around the United States, averaging 1,000 new jobs each.
The new centers will give customers more personalized support. Additionally, the companies plan to expand two existing T-Mobile Centers, cumulatively creating up to 5,600 additional American customer care jobs by 2021.
Overland Park, Kansas, will be the first of the five new locations. The Overland Park facility will be a new addition to the existing Sprint campus, which was previously announced as the New T-Mobile’s secondary headquarters.
From the network architecture point of view, Verizon’s proposed $4.4 billion purchase of AOL Network will add to the business case for network densification and increase the need for intelligence at the edge of the network, feeding the ability to target content and marketing to the user, Tormod Larsen, chief technology officer, ExteNet Systems, told AGL Media Group in a phone interview.
“With the acquisition of AOL by Verizon, we see the value in content delivery and the service application layer providing revenue beyond the more traditional subscriber model,” Larsen said. “With content-rich applications, we anticipate a direct correlation between the delivery of the content and increased revenue.”
As content-rich applications become more critical to revenue, the ability of the network to handle high-quality content will be critical. Densification will increase the network’s capability to provide that high-value content.
“You might even see the carriers driving the network into areas to provide service based on where it is more valuable to provide that content. It is not always the content; it is also the Big Data,” Larsen said.
Content-driven Delivery Ups the Wireless Ante
Before cellular systems were voice-centric, carriers were inclined to build the same network everywhere, but now with data-centric service, and even more so with content-driven delivery, heterogeneous networks have come to the fore. The wireless infrastructure industry has moved from coverage networks to capacity-driven networks; now the goal is smart-capacity networks.
“What we see evolving is the concept of small networks within the big networks — basically an architecture of networks within networks. For example, a stadium network has different functionality and it is is more independent of the macro environment because it is its own ecosystem,” Larsen said.
Content delivery will be tailored based on the location, whether it is a stadium, a hospital or a hotel. The content can be targeted to specific audiences at specific times, based on how the network is architected. For network infrastructure providers, it is an opportunity to provide more infrastructure because there will be more demand for network capability, especially when a carrier wants granular Big Data analytics.
“What the user expects from a network in a stadium is different from what he or she expects the network to do along the highway,” Larsen said. “With Verizon’s purchase of AOL’s platforms, the carrier can know exactly which subscriber is sitting in which seat and what their habits are, thus allowing targeted content delivery and advertisements.” Additionally, advertising and content can follow the user from the stadium to a hotel room.
Pushing Intelligence to the Network Edge Gives the Carrier an Edge
Network coverage is currently the differentiator, and each carrier has its signature coverage map. But soon those networks will be built out with LTE and the map discussion will become a moot point from a marketing standpoint. So carriers are looking to content delivery for the advantage that will allow them to shine compared with their competition.
Verizon is not alone in its foray into content. AT&T plans to leverage its relationships with automakers to offer advertiser-supported or paid content exclusively for connected car users, according to Reuters. Connected car users will see content, such as videos and games, that can be streamed onto personal mobile devices later this year.
“When you talk about the carriers, currently, you talk about the network, but when you talk about Google, you talk about the subscribers and service, not the network. Even though they have one of the most complex networks,” Larsen said. “More and more carriers are moving into the service and applications. The network will not be the differentiator going forward. The differentiator will be the service and applications that the network enables.”
The play for a distributed network provider like ExteNet is to provide the carrier with a network within the larger network, where the intelligence resides at the edge of the network, not in a datacenter states away.
“It’s about being smarter about how you route your traffic in the network based on location, who the user is, the type of content and the event,” Larsen said. “The carriers may need some partners that are more nimble to help them adjust the network in a venue for a special event. We will need to be able to support that dynamic behavior.”