How Dish Network plans to become a cell phone company in 2020

Dish Network Chairman Charlie Ergen believes his company could be a significant competitor in the US consumer wireless business.

Ergen testified over two days this week in support of the merger of T-Mobile and Sprint, which is currently being challenged in federal court by a group of state attorneys general. The companies say the merger is necessary to build out a nationwide 5G network and because Sprint could struggle to survive on its own. But the states say consolidating the market will reduce competition and will probably raise prices for consumers.

The merger stands to be one of the most consequential in the history of the telecommunications industry, and the trial is its final hurdle. The combination was approved earlier this year by the US Department of Justice and the Federal Communications Commission after Dish agreed to acquire assets from Sprint and enter the wireless market, a move intended to reduce potential anticompetitive effects from the merger.

If T-Mobile and Sprint win the suit and the merger is allowed to go through, Dish would be poised to buy Sprint’s Boost Mobile prepaid brand. It would also buy a block of wireless spectrum — the radio frequencies that wireless signals travel over — from Sprint. As part of the deal, Dish would have a seven-year agreement with T-Mobile that would allow Dish customers to be serviced on the T-Mobile network while it builds out its own network.

“We will compete with the largest wireless operators in the United States and we will compete from day one,” Ergen testified.

But there are questions about whether the satellite provider could really become a viable competitor to what — post-merger — would be three similarly-sized wireless giants: AT&T, Verizon and the “New T-Mobile” (AT&T is CNN’s parent company).

Nonetheless, Ergen’s testimony excited Dish investors. The company’s stock jumped from $34.47 at close on Tuesday, the first day of Ergen’s testimony, to open at $36.05 Wednesday.

“This isn’t some fantasy for us,” Ergen said. “We’ve wanted to get into this wireless business for the past 10 years. I’ve worked on it darn near every day. Now, the stars have aligned to allow us to do this and we know we can compete.”

Propping up a fourth competitor

Ergen’s testimony shed some light on how the merger deal, with Dish as a remedy, came together. Initially, he said, he opposed the combination.

Dish has wanted to enter the wireless market for a decade, spending around $12 billion on earlier wireless spectrum purchases and promising the FCC that it will have a nationwide 5G network by 2023.

“I was worried that with three large companies instead of four, it would be more difficult for Dish to enter the marketplace,” Ergen said.

But Ergen said conversations with the FCC and T-Mobile changed his mind. To get a head start on building a wireless network, Dish will need to purchase Sprint’s divestiture assets for $1.4 billion.

Though Ergen said the company has enough cash on its balance sheet to afford the purchase, Dish worked out an arrangement with Sprint owner SoftBank Group to facilitate the acquisition of a $1 billion loan from JPMorgan to fund the deal. The DOJ has approved the agreement, which will take place only if the merger goes through.

Dish’s wireless aspirations

Succeeding as a new entrant to a market with three massive incumbents would be a tall order.

“There’s a chance we fail, it’s a tough business out there,” he said.

But Dish is “a tough company, too,” Ergen said. He laid out what the evolution of Dish’s wireless network will look like if the deal — which would hand over 9.5 million Boost Mobile customers, 500 employees, 7,500 storefronts from Sprint to Dish — is allowed to go through. Dish would also get around 20,000 towers from Sprint and a block of low-band spectrum, the kind of wireless frequency needed to cover large areas and lots of people.

It would immediately move the Boost Mobile customers onto the “New T-Mobile” network, thanks to its agreement with T-Mobile. Ergen said that Dish plans to keep Boost as a prepaid brand, while also starting a postpaid operation — postpaid customers are typically more profitable for wireless companies.

Then the company would start building out its own 5G network city by city. Ergen said that by the end of 2020, Dish expects to have at least one city up and running with 5G.

By 2022, he said the company plans to have 10,000 subscribers on its network in more than 100 cities.

Still, Dish’s projections for its first few years in the market would put it at just a fraction of the 50,000 subscribers Sprint currently has.

The states’ attorney argued that Dish has failed to keep promises to the FCC before, related to satellite launches for its video business.

But Ergen said that merger or not, Dish has no choice but to launch its network. Failing to do so would result in FCC fines and cause it to lose out on its investments in spectrum.

“If we didn’t build it … it would be financial suicide,” Ergen said.

Dish expects building its network to cost between $8 to $10 billion. In the past two weeks, Dish has received “highly confident” letters from three major banks, including JPMorgan and Morgan Stanley, that said they could raise $10 billion for the effort.

Witness testimony in the merger trial is expected to wrap up either late this week or early next. Closing arguments and a decision from Judge Victor Marrero of the Southern District Court of New York about whether to approve the merger could come by the end of the year.