Justice Dept approves the “New T-Mobile” via Sprint merger; Dish Network becomes 4th U.S. wireless carrier with focus on 5G

The Justice Department approved T-Mobile US Inc. ’s merger with Sprint Corp. after the companies agreed to create a new wireless carrier by selling assets to satellite-TV provider Dish Network Corp.  The federal approval for T-Mobile and Sprint caps a more than yearlong review of a combination that fell apart twice in the past five years over terms of the deal or fears that the Justice Department would object.

The landmark antitrust agreement seeks to address concerns that the combination of T-Mobile, the nation’s No. 3 carrier by subscribers, and No. 4 Sprint will drive up prices for consumers. It would leave more than 95% of American cellphone customers with the top three U.S. operators.

A deal brokered by the Justice Department will require Dish, which has been sitting on valuable airwaves, to build a 5G network for cellphone customers. To help it get started, T-Mobile will sell Sprint’s prepaid brands to Dish and give access to its network for seven years.

“The remedies set up Dish as a disruptive force in wireless” with the pieces needed for the company to have a cellphone service that is ready to go, Makan Delrahim, the Justice Department’s antitrust chief, said in a news conference.

Critics of the arrangement include a group of state attorneys general that broke with the Justice Department and have filed an antitrust lawsuit seeking to block the more than $26 billion merger. Five states that weren’t part of the lawsuit joined the federal government in the settlement announced Friday.

“Why scramble so much to create a fourth competitor when you already have one?” said Samuel Weinstein, an assistant law professor at the Cardozo School of Law at Yeshiva University who worked previously in the Justice Department’s antitrust unit.

The deal gives Dish Network, a satellite-TV provider, about nine million Sprint prepaid cellphone customers and additional wireless spectrum. Those subscribers, which mostly come from its Boost Mobile business, represent about one-fifth of Sprint’s customer base. Dish’s service, which could keep the Boost brand or take on a new name, would also be able to move from pay-as-you-go plans to postpaid service, which tends to be more profitable.

T-Mobile and Sprint must also give Dish access to at least 20,000 cell sites and hundreds of retail locations. The new T-Mobile must provide “robust access” to its network, the Justice Department said.  Please see comments on Dish in the box below this article.

The union of T-Mobile and Sprint, years in the making, would create a wireless company surpassing 90 million U.S. customers, closing the gap with Verizon Communications Inc. and AT&T Inc., which each have roughly 100 million wireless customers. It also would fulfill a long-held goal of Japan’s SoftBank Group Corp., which owns most of Sprint, and Deutsche Telekom AG, which controls T-Mobile.

T-Mobile and Sprint currently use separate frequencies, often requiring different cell towers:

Under the merger:

  • Dish rents capacity from the new T-Mobile, creating a new carrier to serve Boost Mobile customers and giving it time to build its own network.
  • After seven years, Dish runs its own network using spectrum from its past acquisitions and its own equipment installed on fewer towers.

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Federal Communications Commission Chairman Ajit Pai, who had previously backed the deal, said Friday the Justice Department settlement, coupled with T-Mobile and Sprint’s earlier commitments to deploy a nationwide 5G network, will preserve competition and advance U.S. leadership in rolling out next-generation networks.

In its agreement with the government, T-Mobile promised not to raise prices for three years and cover 97% of the U.S. population with 5G service in three years.   T-Mobile has been adding millions of customers at the expense of its rivals, pushing unlimited data plans and lower prices than the incumbents. Sprint, despite owning valuable airwaves, has been shedding millions of subscribers and has struggled to be profitable.

T-Mobile surpassed Sprint to become the number three wireless carrier by subscribers and argued the acquisition of the smaller carrier’s airwaves would help speed its deployment of a 5G network so that it could better compete with Verizon and AT&T.  U.S. carriers have been battling for customers in the $180 billion wireless voice-and-data market, where growth has slowed now that the companies have rolled out unlimited data plans and most Americans have upgraded to smartphones.

 

Dish will scrap its NB-IoT plan and focus purely on 5G, which the U.S. government has always wanted, according to a person familiar with the matter. (Dish hasn’t totally abandoned its old plan yet because the deal still hasn’t closed).  Dish must build a 5G network that covers 20% of the U.S. population by 2022 and 70% by 2023. If it can’t reach that goal, Dish will have to pay a $2.2 billion penalty to the U.S. Treasury.
Merger Being Challenged:
A group of states led by the attorneys general of New York and California are pressing ahead with an antitrust lawsuit seeking to block the combination, saying it would harm consumers. All the officials who joined the suit are Democrats; those who decided to support the Justice Department on Friday are Republicans.

Letitia James, the New York attorney general, said the proposed merger would cause harm to consumers nationwide. “To be clear: The free market should be picking winners and losers, not the government, and not regulators,” she said during a call with reporters. Ms. James said Dish lacks the experience to operate a nationwide mobile network.

Mr. Delrahim said his office will share its settlement with the federal judge overseeing the states’ lawsuit. “Sometimes independent sovereigns do make independent determinations,” he said. A trial is expected later this year. On Friday, T-Mobile and Sprint extended the deadline to close their deal, from July 29 to Nov. 1.

The Justice Department stopped sharing information with the Democratic attorneys general after they decided to file their lawsuit in June without notifying their federal counterparts, Mr. Delrahim said. “That was their choice, not ours,” he said.

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T-Mobile said it expects to close its Sprint purchase in the second half of this year despite the states’ lawsuit.  Under the deal, Dish will pay $1.4 billion for the Sprint customer accounts, most of which come from its Boost prepaid brand, and $3.6 billion three years later to buy Sprint spectrum licenses in the 800-megahertz range, which can travel long distances and cover rural areas.

The new T-Mobile will have the option to lease back part of that spectrum for an additional two years after the airwaves sale closes. The companies have also agreed to negotiate for T-Mobile to lease Dish spectrum in the 600-megahertz range.

Dish is set to start its wireless life with a base of Sprint’s pay-as-you-go customers, though carriers often struggle to keep those so-called prepaid subscribers. More than 4% of Sprint’s prepaid customers choose to drop their service or are disconnected for nonpayment each month, according to company filings.

The deal creates a fake competitor, said Andrew Jay Schwartzman, a lecturer at Georgetown Law, adding that even if Dish builds out its own network it will take years. During that time, the three large carriers will be able to introduce 5G and lock in their subscriber bases, he said.

“Rather than having Sprint as a weak fourth competitor, the combined companies will now face an extremely weak fourth competitor,” Mr. Schwartzman said.

Sprint ended March with nearly $33 billion of net debt on its balance sheet. Even though it had more than 40 million customers, Sprint said during deal negotiations that it was in poor health and wouldn’t be able to launch nationwide 5G service without the merger.

Dish has argued it can build a better network by starting from scratch. Even before he pursued a deal with the Justice Department, Dish Chairman Charlie Ergen said his business could invest capital more efficiently without the burden of old equipment and software holding back its ambitions. Dish hasn’t made public the prices or structure of the wireless plans it will sell.

“These developments are the fulfillment of more than two decades’ worth of work and more than $21 billion in spectrum investments intended to transform Dish into a connectivity company,” Dish CEO Ergen said in a press release. “Taken together, these opportunities will set the stage for our entry as the nation’s fourth facilities-based wireless competitor and accelerate our work to launch the country’s first standalone 5G broadband network.”

Dish says:

The 800 MHz nationwide spectrum adds to Dish’s existing 600 MHz and 700 MHz low-band holdings. The low-band portfolio, well suited for wide geographic coverage and in-building penetration, complements Dish’s AWS-4 and AWS H Block mid-band offerings, which promise high data capacity potential with narrower operating range.

Dish has committed to new buildout schedules associated with the company’s 600 MHz, AWS-4, 700 MHz E Block and AWS H Block licenses. In addition, DISH has committed to deploy 5G Broadband Service utilizing those licenses.

Senior FCC officials said on a call with reporters that they are confident the new carrier under Dish will be viable because the wholesale deal it has struck with the new T-Mobile is more aggressive than any other such arrangement the carrier and Sprint currently have. Its terms give Dish the financial ability to compete in the prepaid market against T-Mobile’s Metro brand, they said.   The settlement also included provisions designed to make sure Dish actually builds the promised infrastructure. Among other penalties, Dish agreed to pay the government up to $2.2 billion if it fails to meet its network expansion requirements.

Following the closing of T-Mobile’s merger with Sprint and subsequent integration into the New T-Mobile, DISH will have the option to take on leases for certain cell sites and retail locations that are decommissioned by the New T-Mobile for five years following the closing of the divestiture transaction, subject to any assignment restrictions. The companies have also committed to engage in good faith negotiations regarding the leasing of some or all of DISH’s 600 MHz spectrum to T-Mobile.

The completion of the T-Mobile and Sprint combination remains subject to remaining regulatory approvals and certain other customary closing conditions. T-Mobile and Sprint expect to receive final federal regulatory approval in Q3 2019 and currently anticipate that the merger will be permitted to close in the second half of 2019. Additional information can be found at www.NewTMobile.com.

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Addendum from WSJ Editorial Board July 27, 2019 print edition:

The Justice Dept has rescued Dish Chairman Charlie Ergen from his bet of buying wireless spectrum but keeping it idle. Mr. Ergen loudly opposed the merger, and his reward was the chance to buy Sprint’s pre-paid customers at a bargain price and have access to 20,000 T-Mobile-Sprint cell sites and hundreds of retail locations. But Dish has no experience running a wireless network, and it will take years to build one even as the Big Three invest to gain an edge in 5G wireless…………………………………………………..

A  strong third competitor will be good for consumers and 5G deployment in the U.S. The combined company should force Verizon and AT&T to focus on 5G rather than dabbling in content acquisitions like Time Warner. Three strong competitors are better than two.

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FCC Comments:

“That’s a real significant win for U.S. leadership in 5G. It’s been my top priority. It’s been a big priority for the Trump administration. And by accelerating 5G build-out through this deal, 99% of Americans are going to see 5G faster,” FCC Commissioner Carr said.

In addition to the Justice Department, FCC Chairman Ajit Pai announced support for the more than $26 billion merger in May. The deal still faces a lawsuit from 13 state attorneys general and the District of Columbia that seeks to block it.

https://www.cnbc.com/2019/07/26/fcc-official-clearance-of-sprint-t-mobile-deal-is-significant-win.html

 

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References:

https://www.wsj.com/articles/justice-department-approves-merger-of-t-mobile-us-and-sprint-11564155026

https://www.t-mobile.com/news/t-mobile-sprint-merger-doj-clearance

https://www.cnbc.com/2019/07/26/dish-network-finally-has-a-plan-for-a-new-wireless-network.html

https://techblog.comsoc.org/2018/08/03/dish-network-on-track-for-5g-build-out-phase1-is-nb-iot/

Dish Network on track for 5G build-out; Phase1 is NB-IoT

Despite skepticism from industry analysts and some recent prodding by the FCC, Dish Network Corp. is steadfastly confident that it can meet its service and buildout commitments for the wireless spectrum it owns.  On it’s second quarter earings call (see excerpts below), Dish stressed that it’s “on track” to complete the first phase of a 5G-capable network, initially supporting Narrow Band Internet of Things (NB-IoT) services, by March 2020.

Author’s Note: Of course, NB-IoT is a 3GPP spec and is not part of true standardized 5G (ITU-R IMT 2020).

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CEO Charlie Ergen on Dish’s 2Q-2018 earnings call earlier this week:

When we first started talking about it, I think there was a high degree of skepticism that an IoT network — that narrowband IoT network was the business. And of course since that time, you’ve seen Verizon, and AT&T, and T-Mobile now has a national plan all around the world Vodafone, companies in China very far ahead in IoT. So think it’s now recognized that narrowband IoT is in fact a major contributor in the world moving forward.

So we have a track record of being innovative, disruptive and it may be on the — maybe being on the very, very leading edge of where technologies go and we have another opportunity to do that in 5G…. I think that the FCC is maybe just like many people in this call and many investors and that there is some skepticism on DISH’s ability to execute that plan it’s a big project. And I think as the months go by, as people see the progress that we made, you turn that into people coming to the realization that we can in fact — we face same skepticism when we were going to launch satellites and compete against with — compete against incumbents and major corporations. And we never done that before, it was a big project for us. But with a dedicated team of people focused on the right direction we’re confident that we’ll be able to do that.

But the big paradigm shift in 5G, not the market in 5G that you’re going to hear about , but the real paradigm shift in 5G is Release 16 from 3GPP, which for standalone network is December of 2019, that’s when the specification comes out. It allows you to do three things that you can’t do in 5G today; it allows massive broadband; it allows massive IoT connectivity; and it allows the network to have low latency, so very, very low latencies.

Editor’s Note:  That is absolutely correct- it’s 3GPP release 16, along with parts of release 15, that will be submitted to ITU-R WP 5D for consideration as an IMt 2020 RIT.

We also are in a position with clean sheet of paper to do one — two more things really; one is to virtualize the network in a day and virtualize every aspect of our network, not just portions of it; and to slice our network so that it looks like separate networks to potential partners and customers. So it’s a huge, huge paradigm shift in terms of being 100% 5G with Release 19. So that release comes out at December 19, which means that people have to go build product for that. So product becomes available sometime later in 2020.

The second thing that happens is that our uplink spectrum. Let’s take 600 megahertz as an example that is not cleared by the broadcasters fully cleared until July of 2020. So we can’t build a modern network. The state-of-the-art we can’t start building that until 2020. And we’re hampered today just as a sideline, we’re very hampered today in building network because our uplink spectrum — we only have 5 megahertz of uplink spectrum. You can’t build a massive broadband network with 5 megahertz of uplink spectrum. So we have a lot of downlink spectrum, but we don’t have corresponding uplink. So we’ve got to get that cleared. And it’s not — it’s the 600 megahertz, it’s still the DE issues that are outstanding, all those things need to get cleared up for us to be able to do it. But everything comes together in 2020 for us to build a modern network.

The competitors will start building hybrid networks, but they’re not going to get to a full 5G platform without ripping out what they already have. And they have hundreds of millions of customers with phones. So the phone customer is not going to see that much difference in latency. So that some of the things that we’re going to do aren’t going to be that attractive from a cost to benefit ratio to the incumbents. But if we want to lead in 5G, we want to lead in artificial intelligence, virtual reality, autonomous vehicles,, smart cities, you’re going to need a more modern network for that and we’ll play big part in that.

Dish expects NB-IoT deployments to start “in earnest” this fall, Tom Cullen, Dish’s EVP of corporate development said. He pointed out that this part of the buildout is already funded by cash on the company’s balance sheet.

As I mentioned on the last call, we’ve made a lot of good progress and it’s the number one priority here at DISH and we’ve got a dedicated team working on it day-in and day-out. And we’ll start seeing radios in the next in the coming weeks and the deployment will start in earnest later this fall and that as we’ve mentioned before, it can be funded off of cash on the balance sheet.

On the number of NB-IoT cell sites/towers, Ergen said:

We’re not, at this point, disclosing the number of towers. As you know — as you’re doing RF planning and deployment that’s a pretty fluid environment and the number of towers is changing as we make progress going down the road. So I can’t address that specifically other than, as I said earlier, we feel like we’re making good progress and we’ll have pretty meaningful insight I think in the next four to six months.

I think you can assume that we would have materially less towers in phase one than phase two as you get into some of 5G applications that once the Release 19 is that you’ll need a denser network for sure. We have disclosed that we expect to spend between $500 and $1 billion on wireless through 2020. So they give you’re a range where we think it is no matter how many towers it is, we’re probably going to be in that range. And we’re working with a third party for RF design in terms of how many towers. And then obviously once we get it to test, we could verify that the specifications that the RF design and the vendors have said to us, is accurate. And so we’re — the answer is we don’t surely know, but we do know it’s materially less towers than perhaps the incumbents have today on a nationwide basis just because the range is clearly farther to the spec.

Cullen on 3GPP NB-IoT coverage:

 I would only say that the 3GPP standard spec) today is about 35 kilometer coverage. But the 3GPP is currently entertaining, changing the NB-IoT standard (spec) to 120 kilometers of coverage and some of the vendors we’re working with are able to provide 100 km. Now you can’t do that in every area, obviously, because of clutter and urban density and so forth. But that — because of that level of propagation, it reduces the number of towers necessary to provide the required terrestrial signal coverage as dictated by the license.

Ergen refuted persistent suggestions that Dish should just sell its spectrum, holding that Dish is committed to the network buildout because 5G is critical to the company’s future.

I don’t think you’ve heard me talking much about selling spectrum even, question number one. And then analysts have talked about that but I think that we see such an opportunity for 5G in terms of what that does realizes is our network is going to be different as a standalone network, it’s a little bit different. And we think the customer we might go after might be quite a bit different than the incumbents. And we see that as the long-term future of how this company is relevant 30 years from now. And so that’s a tough transition and tough on investors to be patient while it goes through that. But that has been our focus and has always been our focus.

We originally want to be built an LTE 4G network. We just — the rules on H-block got changed where we suddenly lost some of our — from interference perspective and we had to change course and then we had to go downlink this is all things that took place we had to wait for the next paradigm shift. And that’s — the good news is the 5G paradigm shift is much bigger than the LTE paradigm shift.

How much capital will be needed for the 5G build-out?  Here’s what Ergen said:

There is no question that we need to raise capital for the build-out. But realize we’re two-thirds of the way there — more than two-thirds of the way there in terms of capital for total 5G network. So run the math on that and it’s something like dollar megahertz per pop with a totally standalone 5G network, right. The number of people that might be attractive to is very long. What way you might structure partnerships and the ability for capital are many, many, many, many options to how you might do that.

There isn’t an industry in the next decade that doesn’t need what we’re going to build; and tens of billions of dollars is going to autonomous vehicles, but they’re going to need a piece of what we have; tens of billions of dollars goes to healthcare, they need a piece of what we have; tens of billions of dollars goes in utilities, they need a piece of what we have; tens of billions dollars is going into artificial intelligence, they need a piece of what we have; tens of billions of dollars are going in virtual reality, autoimmune reality and need a piece of what we have; tens of billions dollars is going into smart cities, they need a piece of what we have.

How long will NB-IoT build out take and what comes next?

It takes three years to build this first phase (NB-IoT). But the first phase leads to the second phase, which I think everybody is going to be pretty thrilled about, including the FCCs and investors and consumers. The first phase is going to be important but it’s not going to be as massive as we all would like. But for our license that’s not required and there is practical reasons why we can’t make it more massive today.

 

 

 

 

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