Dish To Buy Parts of T-Mobile To Save Sprint Merger, But It's Not Likely To Help

We recently noted that the DOJ seemed to have shifted its thinking and is now likely to approve T-Mobile's highly problematic $25 billion merger with Sprint. Why? As it stands, the merger would eliminate one of just four major US wireless competitors, dramatically reducing any incentive to compete on price and inevitably resulting in layoffs. So T-Mobile lobbyists have launched a hail Mary pass: they're proposing spinning off a part of the company and potentially selling it to a competitor like Dish Network. This would create a new fourth carrier to (theoretically) help offset any potential competitive harm.

That theory gained traction again with yet more reports stating that Dish would buy about $6 billion in T-Mobile and Sprint assets in an attempt to force this new fourth carrier into existence:

"Dish could announce a deal as soon as this week for assets including wireless spectrum and Sprint's Boost Mobile brand, said the people, who asked to not be identified because the matter isn't public. The deal hasn't been finalized and talks could still fall through, said the people.

The potential divestitures are aimed at appeasing the Justice Department, which wants T-Mobile and Sprint to sell enough assets to ensure that the U.S. maintains at least four viable wireless players.

While this is likely going to be played up by the press and loyal T-Mobile politicians as the perfect "solution" to the reduced competition issue the deal creates, that's not true. The assets Dish is buying (Sprint's prepaid brand Boost Mobile) are largely incongruent with actually building a viable fourth carrier, so while this deal might be great for Dish (which has been hoovering up and squatting on spectrum for years with zero penalty) it's not going to accomplish what T-Mobile and the government are going to claim when DOJ approval is announced this week or next.

Wall Street analyst Craig Moffett put it this way in a research note to investors:

"We're not sure why that deal is sensible for anyone involved. Dish, remember, already has more spectrum than they know what to do with; what they lack is money and ground facilities, and the deal described on Friday wouldn't deliver either one. Instead, it would make both problems worse. And while Boost would help provide a baseline revenue stream in return for an upfront purchase price, the fit between Boost and Dish is, at best, superficial.

Yes, Boost serves a budget-conscious consumer, as does Dish Network's satellite business, but Boost is a mostly urban brand and Dish's satellite business is an increasingly rural one. And, more urgently, Boost's distribution poses a huge problem. Historically, Boost was heavily dependent on Walmart for retail gross additions, but they've since lost that distribution channel. They would also, presumably, lose distribution through Sprint-branded stores (and even if, as a condition of the deal, they didn't, does anyone think that Sprint/T-Mobile store employees would direct any volume to a spun-off Boost brand?) That would leave Dish with a brand that has a churn rate as high as 5% per month to be spun off with an inadequate distribution front end, and with no realistic path to replace that front end before the subscriber base was, well, gone."

That's a lengthy way of saying the spin off and sale of assets to Dish isn't going to work, and the end product is not going to be an adequate replacement for technically killing off Sprint. The effort is theatrical, and likely to end with just three major competitors anyway.

The other major problem is regulatory accountability and follow through. Creating and maintaining an entirely new viable fourth carrier while ensuring Dish doesn't just squat on spectrum for later sale is going to require some significant regulatory guard rails and FCC oversight. Who exactly is going to shepard this process, Ajit Pai? The same Ajit Pai that has yet to stand up to any major company on any issue of substance? The same Ajit Pai who didn't think any meaningful conditions were required to protect jobs and consumers from the deal's inevitable impact? The same guy who thinks oversight of predatory natural monopolies isn't necessary? Good luck with that.

At the end of the day Dish's involvement will be sold as an amazing solution to the deal's biggest issues. But in reality the simpler, safer, and saner option remains to just block the deal outright. Just like regulators did when they blocked AT&T from buying T-Mobile in 2011, and when Sprint tried the same thing in 2014. A turd is still a turd, even when you put an adorable little hat on it.