T-Mobile and Sprint merger could get final approval tomorrow
As we told you over the weekend, T-Mobile parent company Deutsche Telekom dropped a demand that was holding up a deal between T-Mobile, Sprint and Dish Network. The latter would buy Boost Mobile and some spectrum from the carriers and in return, it would create a new competitor to replace Sprint. And that would give the U.S. Justice Department enough peace of mind to allow the $26.5 billion merger between the nation's third and fourth-largest wireless providers to proceed.
If Dish reaches an agreement with Deutsche Telekom and Sprint, it will enter into an MVNO agreement with T-Mobile that will allow it to use the carrier's network to sell cellular service to consumers in the states. At the same time, Dish will start building its own 5G network. Originally, Deutsche Telekom wanted to restrict Dish's access to a small percentage of the T-Mobile network and also demanded that the MVNO agreement be terminated if a third party purchased 5% or more of Dish. The German telecom giant fears that a deep-pocketed partner, say Google or Amazon, will take the opportunity to team up with Dish and use the MVNO agreement to quickly become a major competitor to the New T-Mobile quicker than expected. In other words, Dish would be able to compete against T-Mobile using the latter's own network for the term of the MVNO agreement, expected to be a period of three years.
Could Dish end up being a more "frightening challenger" to T-Mobile than Sprint currently is?
CNBC reports that while this move is risky for Deutsche Telekom, it decided to drop its objections because it feels that moving forward without Sprint is worse than setting up Dish as a new competitor. That is because T-Mobile is looking to be the first in the U.S. to build a nationwide 5G network. And with Sprint's hoard of mid-range 2.5GHz spectrum, T-Mobile will be able to use its low-band 600MHz airwaves and ultra-high frequency mmWave spectrum combined with Sprint's mid-band spectrum for its 5G network. Verizon plans to stick with mmWave airwaves, which travel much shorter distances and do not penetrate buildings as well as the low-band spectrum that T-Mobile owns. This means that it will take Verizon longer to finish a coast to coast 5G network. AT&T plans on following T-Mobile's strategy of combining mmWave and sub-6GHz spectrum for its 5G service.
[img center [[347803]]:"The T-Mobile merger with Sprint could get DOJ approval on Wednesday"]
Some Wall Street analysts believe that allowing Dish Network to enter the wireless business, a long-time dream for its CEO Charles Ergen, is not a smart move for T-Mobile. For example, Craig Moffett of MoffettNathanson says that Dish could be a "more frightening" competitor to T-Mobile than Sprint currently is. After all, if it isn't snapped up by T-Mobile, Sprint could remain a weak challenger to T-Mobile and could continue to lose customers. Instead, a merged T-Mobile-Sprint would have to deal with a company starting from scratch like Dish, which would most likely be ready to undercut T-Mobile's prices from day one.
"If Dish enters the market with a large amount of capacity and no meaningful subscriber base of [average revenue per user] to defend, they would have every incentive in the world to be a disruptive discounter. One need not believe in a follow-on Dish deal with Amazon, Google or a cable operator to see this as bad for the market, and indeed, worse than the ‘no deal’ scenario for T-Mobile."-Craig Moffett, analyst, MoffettNathanson
Those familiar with T-Mobile's thinking say that it believes Dish's wireless service will lose a lot of money in the first few years. That's because, under the terms of the MVNO agreement, Dish will have to give 50% of the revenue it generates to T-Mobile. But things will change once Dish does have its own 5G network up and running. Analysts say that the Dish network will be more efficient than others because it will be built specifically for 5G service. Since it will be brand new, Dish's network won't be used to connect its customers with 2G, 3G or even 4G dataspeeds.
There is one other matter that could block the merger. A lawsuit filed by 13 state attorneys general and the District of Columbia seeks to block the transaction. However, a trial might not start until October at the earliest. Unless the judge overseeing the case issues a temporary restraining order, T-Mobile and Sprint might actually get the green light to end this long-running drama this week.
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