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Dish Deal for Sprint/T-Mobile Assets Seems Bit Crazy – Analyst

Jeff Baumgartner
6/18/2019

While the idea of T-Mobile bringing Amazon into the wireless business to get the Sprint merger seems crazy, swinging a deal with Dish Network to create a fourth US mobile competitor to push the transaction over the finish line appears less nutty, but nutty all the same, says a top industry analyst.

The Wall Street Journal reported late last week that Dish was in the lead to acquire assets that the DoJ would require to be divested in order for T-Mobile and Sprint to wrest their troubled merger from the jaws of defeat.

Update: Dish is closing in on a $6 billion deal for T-Mobile and Sprint assets would include Sprint's Boost prepaid unit and a swath of wireless spectrum, Bloomberg reported Monday, citing unnamed people familiar with the matter. Dish could announce the deal this week, the report added.

The FCC has signaled its approval of the transaction, while a group of ten state attorneys general is still fighting it. The US Department of Justice is expected to hand down its decision as early as this week, possibly granting approval with conditions involving the sale of spectrum and other assets that would ensure the US mobile market retains a viable fourth competitor to take on New T-Mobile, AT&T and Verizon.

The WSJ said Dish is in talks to acquire Sprint's Boost prepaid business and some spectrum, though Charter Communications and Altice USA are also part of the discussions. Comcast has already declared that it's not interested in acquiring any spectrum that could come available from Sprint/T-Mobile.

Dish as the "latest and most likely suitor for divested assets from Sprint/T-Mobile is on the surface, at least a little less 'batshit crazy,'" compared to the notion of a deal that establishes Amazon as an anchor tenant on a third-party network, Craig Moffett, analyst with MoffettNathanson wrote in a blog post. "But only a little."

Nonsensical for all sides
Even with a Dish deal, Moffett said T-Mobile and parent Deutsche Telekom would forfeit two benefits they linked to the deal -- getting more spectrum and establishing "industry structure." And, he added, it's not clear at all that any Dish shareholder, outside of Dish Chairman Charlie Ergen, would want a deal involving Boost and 2.5GHz spectrum to happen.

"We're not sure why that deal is sensible for anyone involved," Moffett wrote, noting that T-Mobile would stand to lose some of the 2.5GHz mid-band spectrum it covets, while Dish already has more spectrum than it knows what to do with.

"What they [Dish] lack is money and ground facilities, and the deal described on Friday (June 14) wouldn't deliver either one. Instead, it would make both problems worse," he explained.

Boost would hand Dish a baseline revenue stream, but Moffett doesn't see it as a great fit. Boost and Dish's satellite TV business are focused on budget-conscious customers, but Boost is more of an urban brand while Dish is becoming increasingly more rural, Moffett pointed out. Plus, Dish would likely lose important distribution at Sprint-branded stores.

"That would leave Dish with a brand that has a churn rate as high as 5% per month to be spun off with an inadequate distribution front end, and with no realistic path to replace that front end before the subscriber base was, well, gone," he wrote.

Dish would also be left with an "unloaded network" with lots of capacity and debt, and a "huge incentive to start discounting aggressively to load the network however they possibly could. At any price," Moffett wrote.

And it would kill off what Moffett views as the "only credible bull case" for Dish shareholders -- the sale of its spectrum. And though Ergen has been adamant about moving ahead with an expensive plan to build a standalone 5G network (following the deployment of an initial narrowband IoT network), those promises "always sound pretty half-hearted," Moffett said.

"When push comes to shove, neither we nor anyone else we can find, save Charlie Ergen himself, seems really to believe that entering the wireless industry from a standing start in 2019 or 2020, as a fourth or even fifth competitor, would be anything other than a terrible idea," the analyst said.

As for T-Mobile, Moffett continues to wonder at what point does T-Mobile opt to walk away, and still be in position to poach a bunch of Sprint subs.

That outcome could also help Dish, Moffett added. That's because if Dish were jilted, then it could make a better case to regulators about selling its spectrum.

Speaking Monday about the transaction drama on CNBC's Squawk Box, Moffett reiterated that it's not sensible for T-Mobile and Sprint to turn Amazon into a mobile competitor, making Dish "the only viable fourth competitor you can imagine."

He also stressed that the sale of more spectrum doesn't help Dish. But he acknowledged that there's still potential to create another competitor by hosting Dish's spectrum on the New T-Mobile network. But that is also fraught with problems.

"You create a competitor with tons of excess capacity, super-low cost, a big pile of debt they have to service, and a natural incentive to start cutting prices," Moffett said. "Is that really a sensible outcome for T-Mobile?"

Confidence low among analysts that deal gets done
Moffett also speculated that the DoJ's Makan Delrahim could set conditions that induce T-Mobile or its parent, Deutsche Telekom, to walk away without putting Delrahim in the position of giving it a yea or nay.

"I still think people are too optimistic that this deal gets done," Moffett said. "There's still a very real chance that this deal ends up getting blocked one way or the other."

Walt Piecyk, analyst with BTIG, also isn't giving the merger great odds, telling CNBC that he gives it less than a 50% chance of getting through.

And having Dish and Ergen in the mix will only complicate things further.

"Do you think Charlie Ergen is just happy with an MVNO deal?," he asked. "He probably wants some assurances from the FCC. Now you're negotiating with T-Mobile, the DoJ, the FCC and Charlie Ergen, who notably wants something good … There's so many moving parts here."

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— Jeff Baumgartner, Senior Editor, Light Reading

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