Charlie Ergen, known for his poker-playing prowess, doesn't have the cards to win in Dish Networks' attempt to renegotiate a delayed deal to buy T-Mobile's prepaid business, a top industry analyst says. And bluffing won't work, either.
"Whatever the source of the delay, here's the thing: He's got no leverage," Craig Moffett, analyst with MoffettNathanson, explained Monday in a post following recent speculation that Dish is seeking better terms. "At the end of the day, he needs this deal more than T-Mobile does. He can't walk away."
Dish, Bloomberg reported last week, has placed more demands on its pending $1.4 billion deal to acquire the Sprint Boost prepaid business from T-Mobile as the July 1 deadline approaches.
T-Mobile's divestiture of that prepaid business – along with a seven-year MVNO deal – was a critical condition that paved the way for T-Mobile's acquisition of Sprint. It was also done to position Dish, which plans to build its own 5G network, as a fourth wireless carrier in the US.
While the entire basis of Dish's desire to renegotiate isn't clear, Moffett says it's reasonable to assume that the value of the prepaid business being acquired has been impaired by the pandemic.
"Churn and bad debt will both suffer as unemployment rises (although pre-paid, as a category, tends to gain share during recessions), so it's possible that he is making a force majeure argument that he should therefore pay less," the analyst wrote. "But it could be about something else entirely, say, the short term lease of Dish's 600 MHz spectrum to T-Mobile."
But Moffett adds that the MVNO deal and an extension on the buildout deadlines from the FCC are likely more important to Dish's long-term ambitions than the initial acquisition of the Boost business.
"Without an MVNO deal, Dish wouldn't be able to generate a single dollar of revenue from his fledgling network until his planned 5G network was finished and able to serve customers on a standalone basis," Moffett explained. "With the MVNO deal, which, if consummated, will last seven years, he would be able to transition traffic onto his own network wherever it is complete, gradually weaning Dish from the MVNO contract over time. The ROI of those two scenarios is radically different. That alone would suggest that Ergen isn't really a credible threat to walk away."
Even if the MVNO deal isn't conditioned on successfully wrapping up the acquisition of the prepaid business, the extension of Dish's spectrum buildout deadlines is.
"And, ultimately, that's even more important than the MVNO," Moffett surmised. "That Ergen was able to secure not just the extension but also a favorable MVNO agreement was icing on the cake. The pre-paid deal, which is what the FCC needed in return, was simply a means to an end."
Dish's move to renegotiate with T-Mobile carries other risks, as the "very spectacle of renegotiating a deal that was so recently signed risks scaring away potential strategic investors in Ergen's 5G network," Moffett wrote.
He also suggested that it's reasonable that T-Mobile would still be in decent shape even if the Dish deal failed and it was forced to seek another bidder for the Boost business (to fulfill the conditions of the Sprint merger) and perhaps even have to sell at a lower price.
"They've got bigger fish to fry than the possible delta on what was a relatively small transaction," Moffett said of T-Mobile. "In fact, it's an asset they're likely better off without."
Not all analysts share Moffett's view that Ergen's in no position to press a better deal. "Charlie will squeeze and T-Mobile might squeal, but in the end I think he'll get most of what he wants," Roger Entner, analyst with Recon Analytics, told Bloomberg.
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— Jeff Baumgartner, Senior Editor, Light Reading