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Five things we learned about the Dish/AT&T deal

Dish Network created yet another wrinkle in its pursuit of 5G with the announcement earlier this week of a new MVNO deal with AT&T. As the week comes to a close, here are five new insights into the parameters of this complex new development.

1. Some of Dish's mobile customers still need a new phone

Dish has been loudly and publicly campaigning against T-Mobile's plans to shutter the aging 3G CDMA network it acquired through Sprint at the beginning of 2022. An unspecified number of Dish's Boost Mobile customers might be affected by the action (though the financial analysts at Sanford C. Bernstein & Co. estimated the situation will only affect 400,000).

Nonetheless, the issue may have been a driving factor behind Dish's decision to move from T-Mobile to AT&T for its MVNO deal. But during AT&T's earnings call this week, CEO John Stankey explained that Dish still may need to provide its Boost customers with new phones.

"There is a segment of those customers that, ultimately, if they were to come over to our network, will require a device change-out. Exactly what the pace of that is, and when that's necessary, and how it occurs, and the total numbers of that – I think is yet to be played out," Stankey explained.

AT&T Communications CEO Jeff McElfresh added that some Boost customers may need a new phone while others may only need a new SIM card. "This new AT&T agreement does not provide an easy fix for Boost customers facing the earlier than expected shutdown of Sprint's CDMA network," wrote the financial analysts at LightShed Partners earlier this week. "This will cause consumer disruption as Dish works to convert these customers to AT&T's network over the next six months."

2. Dish's MVNO costs will now be lower... or higher

The financial analysts at New Street Research on Thursday estimated that Dish will pay AT&T roughly $14.40 per month for each of its MVNO customers. That, they said, is a significant reduction from the $18 per month per customer it would have had to pay T-Mobile.

"AT&T must have undercut T-Mobile, meaning that Dish's future cost to serve customers is now even lower," agreed the financial analysts at Sanford C. Bernstein & Co. in a note to investors earlier this week.

But other analysts aren't so sure.

"This is all about duration," wrote the financial analysts at MoffettNathanson in a note to investors earlier this week. They pointed out that Dish's new deal with AT&T will be effective for 12 years, longer than Dish's seven-year agreement with T-Mobile. "It's quite possible – likely, even – that Dish's wholesale price with AT&T will be higher than what they were paying T-Mobile. Getting the last penny in the rate negotiation was almost certainly less important than the duration of the contract."

3. It won't help Dish's wholesale ambitions

The analysts at New Street noted that the AT&T/Dish agreement only covers Dish's retail Boost, Ting and Republic Wireless customers. Meaning, Dish cannot extend the agreement to other facets of its 5G ambitions.

That's important considering Dish has long argued that it will chase a variety of 5G businesses, and that retail sales of smartphones may only represent a small portion of its overall 5G business.

"For example, if Dish won the cable MVNO deal, they can't use AT&T's network to fill gaps where Dish doesn't have capacity and so provide the cable companies with a nationwide solution," the New Street analysts explained. "To work with Dish in most of the next decade, cable would need an arrangement like Google had with Sprint and T-Mobile (back when they were two companies). Google customers had access to either network. Where only one was available the choice was easy; where both were available, the choice was based on network strength and price per GB."

4. The deal hints at network sharing

"When you think about this relationship, a broader wholesale capability beyond just the wireless business is a part of this, which is really attractive to us as an infrastructure provider. It's something we do in our core," AT&T's Stankey said this week. "And there are opportunities for us to think about, again, as we deploy – as Dish deploys network infrastructure and where they go, for us to do some things that I think are complementary and helpful to both businesses."

That, according to the New Street analysts, could portend a possible broader agreement between Dish and AT&T for some type of joint network.

"This is where things get vague," the New Street analysts wrote. "If AT&T needs access to Dish's spectrum to support Dish's customers, they can light portions of Dish's portfolio up very easily. They will undoubtedly be a supplier to Dish where they have fiber and Dish needs it. These two pieces are clear. Stankey's comments also seemed to hint at AT&T becoming an infrastructure provider to Dish in the context of helping Dish deploy their spectrum – it seemed like this went beyond leveraging Dish spectrum for Dish subscribers and backhaul."

According to the LightShed analysts, AT&T likely will look to license Dish's AWS-1 spectrum in order to add those licenses into its own network. Indeed, Light Reading recently reported that both AT&T and Verizon continue to access spectrum tied to Dish as part of an FCC effort to expand wireless network capacity in response to the COVID-19 pandemic.

The LightShed analysts also speculated that AT&T might purchase Dish's 700 MHz E-Block spectrum, or work with Dish in a deployment of 12GHz or Ligado's spectrum holdings.

But, according to Crown Castle's CEO, such an agreement might require AT&T and Dish to renegotiate their cell tower rental agreements.

"Our leases prohibit network sharing," explained Crown Castle CEO Jay Brown this week on his company's quarterly conference call. "The carriers, as we contract with them, they have the right to use their spectrum for their own use and for their own network."

But Brown left open the option for some kind of deal. "Certainly [we would] be open to entertaining that conversation," he said. "But I think it would come with additional revenues as it's not permitted currently."

5. T-Mobile will lose money

The financial analysts at Raymond James estimated T-Mobile would reap $300 million in wholesale revenues from Dish in the third and fourth quarters of this year, but said that amount will drop to $100 million per quarter starting next year.

"We assume that AT&T, as the 'primary' provider, will take from T-Mobile almost all of the Dish MVNO business, a $2.4 billion revenue stream," wrote the financial analysts at Sanford C. Bernstein & Co. earlier this week. They estimated the situation will ultimately cost T-Mobile around $3 billion.

"This is not immaterial to T-Mobile," agreed the analysts at LightShed.

T-Mobile is scheduled to report its quarterly earnings next week, while Dish likely will report its own quarterly earnings next month. Executives from both companies will undoubtedly face questions about the situation.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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