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Dish co-founder Charlie Ergen is back in wireless acquisition talks after several failures over the last six years.
But this time, if Ergen can convince Deutsche Telekom, U.S. regulators and a group of state attorneys general that his company can be a knight in shining armor, he may end up saving not only T-Mobile's deal for Sprint, but also his own company's prospects.
The Department of Justice is still weighing whether it will approve a merger between T-Mobile and Sprint. The big question surrounding the deal since its announcement more than a year ago is if regulators will allow the U.S. wireless market to go from four competitors (Verizon, AT&T, T-Mobile and Sprint) to three.
That's led the DOJ to look for a solution that would create a new fourth competitor if it allows T-Mobile and Sprint to merge.
Regulators believe Dish is uniquely positioned to become that fourth U.S. wireless provider, according to people familiar with the matter. That's because Dish has spent the last decade acquiring nearly $20 billion of wireless airwaves through acquisitions and government auctions.
Dish may also have an edge with T-Mobile majority owner Deutsche Telekom because it would pose less of a threat than a larger company such as Amazon.
But Ergen's hardball negotiation style and state regulators could still scuttle a deal.
Talks between Dish, U.S. regulators and Deutsche Telekom are already underway and will continue next week, CNBC previously reported.
The talks revolve around Dish using the Sprint/T-Mobile network to host Dish's spectrum, according to sources familiar with the matter.
Dish would use the Sprint/T-Mobile network only until it has built its own rival network, which may take years and cost billions of dollars. The focus of the discussion now is how long Dish will be able to use the network and the economic terms of a revenue-sharing deal, two of the people said.
Dish would also buy prepaid carrier Boost Mobile and additional spectrum as a divestiture to clear regulatory hurdles. But the Boost/spectrum acquisitions aren't the focus of the ongoing discussions between the companies, and won't make or break a deal, said the people. A Dish spokesman declined to comment.
Deutsche Telekom and Japan's SoftBank, the majority owner of Sprint, aren't particularly concerned with enriching Dish as a competitor, two of the people said. They know Dish will only use their network for a set amount of time, and the cost of building a new network could keep Ergen at bay for years, they said. This makes Dish a more appealing partner than a company like Amazon, which has a much bigger balance sheet (and scale to poach customers) and has reportedly expressed interest in buying Boost.
Still, Dish does pose a threat to a combined T-Mobile/Sprint because it will have an incentive to undercut prices immediately to build up a subscriber count, said MoffettNathanson telecommunications analyst Craig Moffett. T-Mobile CEO John Legere, who is set to lead the combined company, has already promised not to raise prices for three years if a deal is completed.
"By putting Dish into business with no existing subscriber base and no existing ARPU [average revenue per user] to protect, the only available strategy for Dish is to aggressively underprice," said Moffett. "It's almost unimaginable Deutsche Telekom would have any appetite where a solution would so radically destabilize the industry. It would be a Pyrrhic victory."
Even if Dish can reach a deal with Deutsche Telekom that placates the DOJ, it's still not clear a T-Mobile/Sprint deal will happen. The California Public Utilities Commission needs to approve the deal before it can close. And then the companies will need to battle 14 state attorneys general who have sued to block a deal. That trial is set for Oct. 7.
Meanwhile, the government wants Dish to put its treasure trove of spectrum to use.
Dish promised the Federal Communications Commission in 2013 that it would provide broadband coverage to 70 percent of the population in the 176 markets by March as part of a $3 billion purchase of spectrum from two bankrupt operators, TerreStar and DBSD North America.
With the deadline less than a year away, Dish isn't even trying to build a new wireless competitor as the government had hoped. Instead, Dish's plan to meet that requirement has been to build a narrowband (not broadband) network for wholesale "internet of things" usage, rather than for consumer wireless purposes. The company's reasoning for waiting: Why build an LTE network when the technology is just going to be obsolete? Better to wait to build a 5G network.
If the FTC doesn't approve, Dish risks losing $3 billion of airwaves. Ergen is pushing the FCC to drop its March deadline as part of discussions with Deutsche Telekom, Bloomberg reported earlier this week.
For Dish, a deal would give the company a much needed new direction. Dish's satellite TV business has been hemorrhaging customers for years. Its Sling TV subscriber growth has slowed dramatically, adding just 7,000 new customers last quarter. Dish investors have stuck with Ergen because they believe he'll either find a way to build a wireless network or sell his $20 billion in spectrum. But shareholders haven't been particularly optimistic about his prospects: Dish shares are down about 38 percent over the past five years.
Dish has talked about building a wireless network for years but has always wanted a partner to diffuse the cost. But it's never been able to land this partner, despite trying several times.
In 2013, Dish bid on mobile service provider Clearwire but lost out to Sprint, which topped Dish's bid.
Dish moved on to trying a merger with T-Mobile in 2015. But talks never got close to a deal because of concerns over structure and valuation — particularly because Deutsche Telekom felt Dish stock was severely overvalued.
Ergen "is a hard negotiator," Erik Prusch, who was Clearwire's CEO at the time, told CNBC last year. "His structures and how he wanted to participate in the economics was always a little bit less straightforward, and that made it challenging to become a partner with him."
Between Ergen's reputation for balking at deals, Deutsche Telekom's hesitance to enrich a long-term competitor and the threat of regulators blocking the deal, the chances that a T-Mobile/Sprint deal actually gets through are still probably less than 50%, said Moffett.
"I'm skeptical that we'll ever see a deal," he said. "It may be that Sprint and T-Mobile take the ball all the way down to the 1-yard line, and it simply may not be possible to punch it across the goal line."