The following is an excerpt from an article posted on the #makingairwaves blog by Voqal’s director of telecommunications strategy, Mark Colwell.
As of last Friday, the U.S. Department of Justice (DOJ) approved the merger between Sprint and T-Mobile but only after requiring a variety of conditions to clear the way for another national wireless carrier to enter the market. That new entrant will be television provider DISH Network.
In addition to buildout requirements imposed by the FCC, the DOJ is requiring Sprint and T-Mobile to:
- Divest Boost/Virgin Mobile and its 9.3 million pre-paid customers to DISH for $1.4B
- Allow DISH to use New T-Mobile network for seven years on a wholesale basis
- Allow DISH the option to buy Sprint’s 800 MHz spectrum after three years for $3.6B
- Allow DISH to the option to buy 400 stores that would be closed
- Allow DISH to the option to buy 20,000 cell sites that would be decommissioned
- Require New T-Mobile to implement electronic SIM cards in its phones, making it easier for consumers to switch providers
All along, Sprint has complained to regulators about its inability to compete. As the fourth largest wireless carrier in the nation with roughly 54 million customers, it has struggled in recent years to make investments and retain its customer base. But if Sprint cannot compete now, will the DOJ’s conditions be enough to fuel DISH as a true competitor?
For any company to survive in the mobile business, key ingredients are needed, including existing cash flow, ability to raise additional capital, adequate spectrum assets, a customer base, and equipment in form of towers, base stations and phones. Many analysts remain skeptical that the conditions will provide DISH with enough key ingredients to bake their own 5G cake. In fact, their current assets are much worse off than keeping Sprint as a 4th competitor. DISH:
- Holds an inferior (perhaps limiting) portfolio of spectrum as compared to stand-alone Sprint
- Operates a pay-tv business that has a declining customer base
- Generates just $1B of free cash flow, when major national wireless companies are spending up $5 to $23B per year
- Will have just 9.3 million pre-paid customers (from Boost), the least desirable kind in the mobile business, compared to Sprint’s 54 million as a stand-alone company
- Faces a difficult road ahead to develop new handsets and tower equipment compatible with its spectrum holdings
Investors and analysts are not oblivious to these facts. In fact, recent analyst notes project DISH could lose 10% of its market value while also facing a downgrade of its debt rating from Moody’s. The same analysts project New T-Mobile to gain up to 20% in market value. One reason for optimism is that T-Mobile will be the only wireless carrier with a huge chunk of contiguous mid-band spectrum – the 2.5 GHz band – for at least two to three years.
Voqal has asked regulators to require divestiture of Sprint’s 2.5 GHz assets in order to fuel a second competitor with adequate mid-band spectrum. In addition, Voqal President John Schwartz recently wrote an opinion piece for Law360 that lays out a strong case for why divestiture of EBS should be a requirement of any merger agreement between T-Mobile and Sprint. Tragically, the DOJ is convinced the mishmash of DISH spectrum combined with just 14 MHz of Sprint’s low-band spectrum – an asset New T-Mobile is happy to shed – will be enough to build a nationwide wireless network.
The final remaining hurdle for the merger will be decided by the court. Attorneys General from 14 states and the District of Columbia have filed a federal lawsuit to block the deal on the grounds that it is anti-competitive. A court date has been set for early October.
To learn more read the full article on the Voqal blog.