(Bloomberg) -- Dish Network Corp., the hard-bargaining satellite-television company, is embarking on a second act as a major wireless carrier. But even with a cache of prized assets, it faces long-shot odds of pulling it off.
The Justice Department opened the door for Dish on Friday when it cleared the $26.5 billion merger of T-Mobile US Inc. and Sprint Corp. In doing so, it forced those companies to divest assets that will potentially transform the pay-TV provider into a major competitor.
But Dish, controlled by Chairman Charlie Ergen, will still need to spend $20 billion over the next few years to build a nationwide wireless network and make use of the spectrum it owns, according to Roger Entner, a telecom analyst and founder of Recon Analytics LLC. Additional billions will be needed to run the network, set up stores and buy advertising, he said.
“If you are spending less than the others, you are usually not closing the gap,” Entner said. “The others are not going to stand by and let Charlie Ergen take away their lunch. So difficult!”
Becoming a wireless carrier would be a dramatic makeover for Dish, a company whose very name is synonymous with satellite equipment. Still, others have pulled off similar feats. Apple Inc. was a nobody in the mobile-phone market before 2007. Nintendo Co. was a 19th century maker of playing cards.
And Ergen, a longtime card player, likes to gamble. In an interview on Friday, he said that anyone betting against Dish is making a foolish wager. “I’ve been in plenty of card games with guys across from me betting wrong,” he said.
But he faces pressures that will make the overhaul challenging. With $14.4 billion in long-term debt at the end of the first quarter, Dish already is highly leveraged and may have trouble raising funds at affordable rates, Entner said.
Dish’s existing satellite-TV business, meanwhile, has hemorrhaged subscribers in recent years.
Even if Ergen is able to raise the money, competing with giants Verizon Communications Inc., AT&T Inc. and the new T-Mobile-Sprint will be tough, Entner said. In most countries, only three wireless companies are able to make a profit. In the U.S., No. 4 Sprint has been a financial train wreck, racking up billions of dollars in debt and losses.
Dish said on Friday that it won’t need additional funds for at least the next year or so. And it’s already getting offers from prospective financing partners, said Tom Cullen, Dish’s executive vice president overseeing its wireless push.
Consumer groups have doubts about the endeavor. Public Citizen labeled the Justice Department deal a disaster on Friday, and called out Englewood, Colorado-based Dish in particular for failing to deliver on a long-promised network. Even before the agreement with T-Mobile and Sprint, the satellite company had vowed to turn its wireless airwaves into a network.
“Dish is never going to build out a wireless network,” Alex Harman, competition policy advocate for Public Citizen’s Congress Watch Division, said in a statement. “It has been promising the Federal Communications Commission and the Congress for nearly a decade that it would enter the wireless market but has never done so.”
What’s more likely is that Dish will ultimately sell its wireless assets to a top-three wireless carrier, analyst Chetan Sharma said in an interview. And that would leave U.S. consumers in the exact situation that the Justice Department sought to avoid: picking among just three options.
As part of the Justice Department agreement, Dish agreed not to sell some of its spectrum for six years without prior regulatory consent. The company also can’t lease more than 35% its capacity to the top-three providers for six years without regulatory approval.
Dish is committed to rolling out a nationwide 5G network that reaches 70% of U.S. population by June of 2023. If the company fails, it owes the government as much as $2.2 billion.
“As we enter the wireless business, we will again serve customers by disrupting incumbents and their legacy networks, this time with the nation’s first stand-alone 5G broadband network,” Ergen said in a statement.
Underlying that pledge is $5 billion in assets that T-Mobile and Sprint agreed to sell to Dish as a condition of Justice Department approval of their merger.
Under the accord, Dish is buying spectrum, as well as Sprint’s Boost and Virgin prepaid businesses. T-Mobile is also required to provide access to its mobile network for seven years while Dish builds its own 5G network, according to a Justice Department statement.
The spectrum purchase is expected to be completed three years after the closing of the acquisition of the prepaid business, Dish said.
“The remedies set up Dish as a disruptive force in wireless,” Makan Delrahim, the head of the Justice Department’s antitrust division, said in a briefing with reporters.
While Dish may struggle to build a network on its own, it could fare better if it secures a partner, such as a large technology company, said Tim Farrar, principal at TMF Associates. The terms of the deal with the Justice Department bar an outright change in control.
“The key question is whether a new entrant can disrupt the wireless market,” Farrar said. “On its own the answer is no, but if Dish secures a major partner like Amazon, then it becomes more plausible.”
To contact the reporters on this story: Olga Kharif in Portland at firstname.lastname@example.org;Nabila Ahmed in New York at email@example.com
To contact the editor responsible for this story: Nick Turner at firstname.lastname@example.org
For more articles like this, please visit us at bloomberg.com
©2019 Bloomberg L.P.