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A TV Maverick Is Going All-In on a New Wireless Bet


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A TV Maverick Is Going All-In on a New Wireless Bet

https://www.wsj.com/articles/a-tv-maverick-is-going-all-in-on-a-new-wireless-bet-11564200000?mod=hp_lead_pos6

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.


DISH 0.87%

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.


S 7.39%

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.

John Legere, chief executive officer of T-Mobile, left, talks to Marcelo Claure, chairman of Sprint and chief operating officer of SoftBank, before the start of a March House Judiciary subcommittee hearing in Washington, D.C.


Photo:

Andrew Harrer/Bloomberg News

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.

Shuffle and Deal

Under a plan endorsed by the Justice Department, T-Mobile and Sprint could close their long-sought merger by equipping Dish with the assets to build a competing wireless network.

T-Mobile and Sprint currently use separate frequencies, often requiring different cell towers

Dish rents capacity from the new T-Mobile, creating a new carrier to serve Boost Mobile customers and giving it time to build its own network.

After seven years, Dish runs its own network using spectrum from its past acquisitions and its own equipment installed on fewer towers.

T-Mobile/Metro/Dish/Boost

Decommissioned or upgraded

T-Mobile and Sprint currently use separate frequencies, often requiring different cell towers

After seven years, Dish runs its own network using spectrum from its past acquisitions and its own equipment installed on fewer towers.

Dish rents capacity from the new T-Mobile, creating a new carrier to serve Boost Mobile customers and giving it time to build its own network.

T-Mobile/Metro/Dish/Boost

Decommissioned or upgraded

T-Mobile and Sprint currently use separate frequencies, often requiring different cell towers

Dish rents capacity from the new T-Mobile, creating a new carrier to serve Boost Mobile customers and giving it time to build its own network.

After seven years, Dish runs its own network using spectrum from its past acquisitions and its own equipment installed on fewer towers.

T-Mobile/Metro/Dish/Boost

Decommissioned or upgraded

T-Mobile and Sprint currently use separate frequencies, often requiring different cell towers

Dish rents capacity from the new T-Mobile, creating a new carrier to serve Boost Mobile customers and giving it time to build its own network.

T-Mobile/Metro/Dish/Boost

Decommissioned or upgraded

After seven years, Dish runs its own network using spectrum from its past acquisitions and its own equipment installed on fewer towers.

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.

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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.

Charlie Ergen, left, co-founded Dish Network with poker buddy Jim DeFranco, right, and his now wife Cantey Ergen.


Photo:

Brian Brainerd/Denver Post/Getty Images

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. 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.

A field service specialist for Dish Network installs a satellite television system at a residence in Denver.


Photo:

Matthew Staver/Bloomberg News

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.

A T-Mobile store in Miami.


Photo:

Joe Raedle/Getty Images

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.

Share your thoughts

Could Dish succeed against bigger wireless players? Join the conversation below.

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.”

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com

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