What are Ergen’s wireless prospects?

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On February 11th, US District Judge Victor Marrero approved the merger between Sprint and T-Mobile.

A report from research company MoffettNathanson (MN) says the deal represents a potential positive for what will now be a new wireless service for the US in the shape of Charlie Ergen who – at long last – can make solid use of his wireless assets (and add to the existing Sprint pre-paid service).

MN said that the deal – for Ergen and Dish – is a tough one to call. “What the deal definitively means is this: Dish Network is now unambiguously committed to being a network builder. And, conversely, not being a spectrum seller.”

“What they got – and what they desperately needed – was an extension to their buildout deadlines. But in getting their extension, they effectively lost the option of selling their spectrum,” suggested MN.

“The consent decree demands that Dish substantially buildout its network, with coverage of 50 per cent of US population by 2023, and 70 per cent by 2025 (both deadlines are based on their AWS-4 mid-band spectrum as that is their largest and most important block. Other bands have different timelines). If they fail to meet the latter of those deadlines, they lose their spectrum and pay a multi-billion dollar penalty. And here’s the important part: they are prohibited from selling their AWS-4 spectrum until those deadlines have come and gone,” stated MN.

“Selling the whole company, at least to either of Verizon or AT&T, would similarly be prohibited. There is simply no wiggle room left for Dish to be viewed as a spectrum seller. (Yes, they could sell some or all of their AWS-3 spectrum to help fund the buildout of AWS-4, but, well, that would be bizarre. Now that they’re in, they’re all in),” said the analysts.

But here’s the risks: “Whether all that is good news or bad news for Dish is in the eye of the beholder. There are clearly those who believe Dish will be able to build a virtualized 5G network for their $10 billion, as they have estimated. We are not among them,” stated MN bluntly.

“There are also those who believe that Dish will be able to capture sufficient market share, at sufficient contribution margins, to earn a compelling return on that $10 billion network (or whatever it is that it actually costs). We are not among them, either,” cautioned MN.

“In the meantime, they’re going to have to make their acquisition of Sprint’s pre-paid subscribers work. Those nine million subscribers have a churn rate of close to 5 percent per month, and the subscriber base is shrinking at a rate of 6.6 per cent per year. So Dish will have to aggressively refill the funnel with new subscribers by significantly accelerating subscriber intake. And to do so they will have to leverage a retail distribution network that is already too small and too ineffective to keep Sprint’s pre-paid business from shrinking,” concluded MN.


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