By Drew FitzGerald
Charlie Ergen has long tried to muscle his way into the U.S.
wireless business. When his rivals had no other choice, the
billionaire behind Dish Network Corp. finally got his way.
John Legere, the chief executive of T-Mobile US Inc., called Mr.
Ergen in late May after it became clear T-Mobile's proposed
takeover of Sprint Corp. was in trouble.
Mr. Ergen had been the most outspoken corporate critic of the
proposed $26 billion deal -- a merger that would leave the U.S.
with three giant cellular companies. But the Colorado maverick also
ran one of the few firms with the airwaves and know-how to create a
new wireless provider that would satisfy the Justice Department's
antitrust concerns.
Two serious attempts to combine T-Mobile and Sprint in the last
five years had already failed. Its third try was already a year
old.
Mr. Legere, a foul-mouthed executive known for tweets poking fun
at his rivals, was all business on the phone. "Justice has said
that we need a fourth carrier. We should talk if you are
interested," Mr. Ergen recalled.
For years, Mr. Ergen had irked telecom rivals and federal
regulators by spending more than $20 billion amassing wireless
licenses but never using them. Time and again Mr. Ergen had
explored various deals, including buying Sprint himself, only to
frustrate the other side. Now, he was the only buyer that could
build a credible fourth nationwide cellphone operator.
"With four, there's always somebody that will be a rabble
rouser," Mr. Ergen said in an interview this week in his office
south of Denver. "Somebody will say I don't have enough market
share. I've only got 9 million subs and want 10 million. That
person is going to be more aggressive. The guy who's got 100
million, he's just going to hope he holds onto them."
Whether Dish can become a formidable force in the mature U.S.
cellphone market will be a key test of the landmark antitrust
agreement announced Friday between the Justice Department and the
companies. The carefully crafted deal gives Dish 9 million of
Sprint's prepaid customers -- its Boost Mobile business and then
some -- plus the right to buy licenses to more airwaves that can
blanket rural areas. It will let Dish operate on T-Mobile's
existing network for seven years while Dish builds its own
nationwide service.
A former professional poker player and card-counting blackjack
whiz who was banned by some Las Vegas casinos, Mr. Ergen co-founded
Dish in 1980 after starting his career as an analyst at Frito Lay
where he calculated how many Doritos should fill a bag. He and his
partners bet their savings, pooling together $60,000 on selling
10-foot-wide satellite dishes from a Denver storefront.
He has said his experience gambling helped hone his business
acumen -- knowing how to "win with bad hands." More than once, Mr.
Ergen has compared his business plans to an "Indiana Jones" movie
in which the hero narrowly dodges a never ending string of lethal
threats.
He switched to hubcap-size dishes and took on cable-TV
monopolies by slashing prices. His service now has 12 million
customers across the country and his controlling stake in Dish is
worth about $9 billion. (He is also the chairman and biggest
shareholder in sister company EchoStar Corp., which operates
satellites.)
The 66-year-old tends to play by his own rules. He has made
executives share hotel rooms on company trips and has done market
research with what he called the "Waffle House poll," visiting
outlets around the country and asking customers how they used their
phones and watched television.
His famously frugal ethos -- he still drives to Dish's
Englewood, Colo., headquarters with lunch in a brown paper bag --
isn't always evident these days. The billionaire often flies in a
private jet and has stopped making employees share hotel rooms on
business trips, according to people familiar with the company.
Mr. Ergen, whose core satellite-TV service has been losing
customers, admits he is starting from behind in the cellphone game.
But he argues that gives him an advantage. "Their legacy is
mishmash. Their networks are plaid," Mr. Ergen said, pointing to
his green-checked dress shirt. "We will be a solid color."
Dish's new network will be dwarfed by the incumbents. Verizon
Communications Inc. has nearly 120 million cellphone customers.
AT&T Inc. and the enlarged T-Mobile will each have more than 90
million. They are among the biggest advertisers in the country.
They are holding onto their subscribers by offering unlimited data
and bundling in free subscriptions to services like HBO and
Netflix. All three are already rolling out faster 5G services.
"How is a company with no track record, no wireless customers
and unused spectrum a more viable competitor?," said Matt Wood,
general counsel at advocacy group Free Press, which publicly
opposed the T-Mobile and Sprint deal.
AT&T, Verizon and T-Mobile have built nationwide networks in
pieces over decades as they acquired rivals or new airwaves
licenses. T-Mobile itself will now spend years integrating Sprint's
network and customers. The incumbents updated the equipment hanging
on cellular towers and the software behind their services as they
moved from 3G connections to faster 4G technology, and now 5G.
Dish plans to lean on T-Mobile while it builds a brand-new,
5G-only network that it can roll out quickly and operate
differently. It also means Dish should be able to roll it out
quickly and operate differently. For example, Mr. Ergen said, Dish
would be able to offer on-demand pricing, such as charging less in
the middle of the night. He also plans to target businesses, such
as automakers, looking for 5G connections.
"We'll get someplace in three years that will take the other
guys 10 years," he said.
The agreement to use T-Mobile's stronger network will allow Dish
to attract customers beyond the cities where Sprint mostly marketed
its Boost service, he said. It also lets Dish build its own network
first in urban areas with many customers and use the T-Mobile
network to reach rural areas that have fewer customers.
Dish will need to add towers in all those less-populated and
less-profitable areas under the deal it reached with the Federal
Communications Commission and the Justice Department. Mr. Ergen
estimates it will cost about $10 billion. But he will be able to
compete for customers and generate cash from his nascent cellular
business before he has to do that.
Mr. Ergen also argues wireless pricing is broken. He says U.S.
carriers have many customers paying for unlimited data plans they
don't need, much as cable companies long forced subscribers to pay
for big bundles of TV channels.
"This is deja vu all over again for us," said Mr. Ergen. In
wireless, he sees an opportunity for Dish to woo customers that use
less data with lower monthly prices and those that are heavy data
users with plans that don't slow their connections.
AT&T CEO Randall Stephenson said this week he wasn't
concerned about the prospect of Dish jumping into the wireless
market. "Our strategy is pretty well baked," he told analysts on
Wednesday. "The strategy is resilient as it relates to changes in
industry structure."
Mr. Ergen has often played the role of disrupter. In 2012, Dish
introduced a DVR that let consumers easily skip commercials,
sparking a legal challenge from broadcasters.
He has often brawled over programming fees with channel owners,
causing blackouts on Dish's service. The company said Friday it
stopped carrying 22 regional sports networks owned by the Walt
Disney Co. over a contract dispute.
Dish has also gone without HBO since November, missing the final
season of "Game of Thrones." Mr. Ergen said HBO's proposal was
unaffordable, calling it "payback" for his company's 2018
opposition to AT&T's purchase of Time Warner. An HBO spokesman
said the terms it offered Dish were consistent with those in place
for large distributors.
Dish launched one of the first live-TV streaming services, Sling
TV, in early 2015. With a small package of channels and lower
price, it made it easy for millions of people to cut their TV bill
- even many of Dish's own satellite customers.
But with cellular service, he has vexed federal authorities and
business partners with what some called broken promises. Critics
said Mr. Ergen was simply hoarding the government-issued licenses
while he waited for a deep-pocketed partner to buy him out. In 2015
he angered FCC officials when he won a large chunk of wireless
licenses at government auction; his bid benefitted from a $3.3
billion discount designed to bring smaller players into the
wireless industry. The FCC later rejected the discount, a decision
that is contested. Last year, FCC officials wrote a letter that
threatened to claw back some Dish licenses if it failed to launch a
cellular service by March 2020.
Mr. Ergen bristles at the notion he has been squatting on
valuable airwaves. He said he simply was outbid by Japan's SoftBank
Group Corp. in 2013 when he tried to buy Sprint. He has been
waiting for a catalyst that would allow him to compete with
entrenched players. The rollout of new 5G networks is just the
technology shift that makes it possible.
"Hoarding is actually a positive for our shareholders and a
positive strategic move because you needed to accumulate spectrum
to go and compete with these guys," he said. "It didn't make any
sense to build a 4G network and tear it all down the next
year."
By early 2019, Dish still had no wireless customers to quell the
government's concerns. The forecast was also darkening for T-Mobile
and Sprint. Their merger effort hit a snag in April, when staff
lawyers at the Justice Department told the companies the deal was
unlikely to earn their approval as it was structured.
The Justice Department pressed the companies to shed enough
pieces of their business to create a new fourth cellphone carrier
that could step into the void left by Sprint, which had been
shedding customers and struggling to turn a profit.
The department met with representatives from potential partners
including Dish and cable operators Altice USA Inc., Charter
Communications Inc. and Comcast Corp., according to people familiar
with the talks. Dish emerged as an early favorite.
Mr. Ergen said his existing airwaves licenses made his pitch to
build a new cellphone carrier more credible. He said he reached a
broad agreement with Mr. Legere and Sprint Chairman Marcelo Claure
in just four weeks of discussions in June.
But the discussions continued for three more weeks as the
Justice Department pressed the merger partners for better terms.
Government lawyers insisted the settlement include no restrictions
on Dish's ability to sell assets, other than to pure competitors,
or find a deep-pocketed partner after the deal.
The Justice Department's antitrust chief, Makan Delharim, was
under the gun as government officials publicly split on the deal.
FCC head Ajit Pai, a fellow Trump administration appointee, had
already endorsed the T-Mobile and Sprint deal while a consortium of
Democratic state attorneys general had filed a lawsuit seeking to
block it, saying it would hurt consumers.
The Justice Department wanted to make sure the final agreement
would stand up in court if challenged by the states. The companies
have agreed to wait to close the deal under a federal court hears
the case later this year.
Mr. Ergen will have to pay $1.4 billion for the Sprint customers
and $3.6 billion in three years for the extra airwaves. T-Mobile
will get the bulk of Sprint's customers and airwaves and also have
the right to buy some Dish spectrum. Sprint's owner SoftBank gets
to cash out after failing to disrupt the U.S. cellular market. The
Justice Department gets to keep a fourth competitor.
"I think three years from now, this transaction will look better
than it does this week," Mr. Ergen said. "They are gonna have real
competition."
--
Sarah Krouse contributed to this article.
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com
(END) Dow Jones Newswires
July 27, 2019 00:14 ET (04:14 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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