Dish Network has forged a new multi-year deal worth at least $5 billion that makes AT&T its primary network services partner for Dish's MVNO customers, and casts Dish's erstwhile wireless partner, T-Mobile, further toward the outskirts.

Under the deal, Dish said it will provide current and future customers of its retail wireless brands, including Boost Mobile, Ting Mobile and Republic wireless, access to AT&T's wireless network, in addition to national 5G network Dish is building. AT&T has also signed on to provide transport and roaming services to support Dish's 5G network, which is set to initially debut in Las Vegas. Dish, which had 8.89 million retail wireless subs at the end of Q1 2021, today also reaffirmed its commitment to build its open RAN-based 5G network to 70% of the US population by 2023.

Among other details noted in the SEC filing pertaining to the new, non-exclusive network services agreement (NSA), Dish's retail wireless customers will have access to AT&T's network, even within the markets where Dish is deploying its own 5G network.

The NSA also provides AT&T with an avenue to deploy "portions" of Dish's spectrum to support Dish customers on the AT&T network. AT&T has "the right, but not the obligation, to request to use portions of Dish's spectrum in different markets for an agreed upon period of time, subject to certain terms and conditions," the filing states. MoffettNathanson analyst Craig Moffett stressed in a research note today that AT&T would face some hurdles there, as AT&T would likely be required to negotiate with the towers to deploy any of Dish's spectrum.

Path to a Dish-DirecTV merger?

Dish claims the deal with AT&T will accelerate the expansion of its retail wireless distribution in rural markets where Dish also provides satellite TV services.

But the undercurrents of the agreement may run much deeper than that, as it sparked rumors that it may portend a future deal involving Dish and DirecTV, the struggling pay-TV unit of AT&T that is in the process of being spun-out into a separate company to be held by AT&T and private equity firm TPG Capital. Though a proposed combination of Dish and DirecTV would face fierce regulatory scrutiny, Dish chairman Charlie Ergen continues to view such a marriage as "inevitable."

MoffettNathanson's Moffett is among those who views today's agreement as one that runs far deeper than just a new MVNO agreement that provides Dish with a substitute to T-Mobile. "In fact, it is much bigger than that. The issue here is duration," Moffett explained. "The T-Mobile MVNO agreement came with a 2027 cliff. It isn't hard to read between the lines here and conclude that T-Mobile was unwilling to extend that existential deadline. AT&T was. The deal between AT&T and Dish extends ten years and, with a two-year 'transition period' on top, it is arguably more like a twelve-year deal. That's a huge, game-changing win for Dish."

Deal spells trouble for T-Mobile, Verizon…and AT&T, analyst says

Moffett also sees this as a loss not just for T-Mobile and Verizon, but also, in a way, for AT&T as well.

"What matters here is the competitive damage done to the industry by enabling Dish to now be a hybrid MNO/MVNO indefinitely," he explained. He notes that Dish is obligated, per the consent decree between Dish, T-Mobile, Sprint, the US DoJ and the FCC, to build out wireless facilities covering 70% of the US population by 2025. That piece of the commitment is not "particularly challenging" for Dish, but what would come after it matters much more, Moffett points out.

"Without an MVNO agreement to fall back on, Dish would have to build that out themselves by 2027, when the T-Mobile deal was slated to expire… and the next 25% of the country occupies nearly ten times the landmass of the first 70%," Moffett wrote. "AT&T has let Dish off the hook." While it's clear that AT&T views the near-term benefit of the additional wholesale revenue it can get from Dish to justify the contract, the analyst also wonders if it will also put AT&T in a tough spot.

"By allowing Dish to compete as a hybrid MNO/MVNO, AT&T has allowed Dish the same opportunity to arbitrage network costs that Verizon's 'perpetual and irrevocable' deal affords the cable industry," he noted. "Just as Cable can build out facilities in dense (low cost/high return) areas and leave the low density (high cost/low return) areas to Verizon, now Dish, too, can build only in high density areas, leaving the rural areas – where much of the heavy lifting is done – to AT&T."

As to how this deal is a "windfall" for Dish and a "terrible decision" for AT&T, Moffett believes the 2016 Orange-MasMovile MVNO deal serves as a good analogy. Though Orange benefitted from incremental wholesale revenues early on, five years later MasMovile has been able to secure double-digit market share while Orange has seen its share shrink.

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— Jeff Baumgartner, Senior Editor, Light Reading