Charlie Ergen’s big bet on Dish Wireless

Dish chair Charlie Ergen, the bad boy of satellite TV, is getting ready for his next act: wireless carrier underdog.

By approving the T-Mobile-Sprint merger earlier this week, a federal judge also greenlit the launch of Dish Wireless, a new upstart carrier.

Much has been written this week about the implications of the merger, which critics fear will be bad for consumers. However, the emergence of Dish as a new carrier is fascinating. It's a story of big long-term bets and skillful negotiations aided by regulatory pressure. It also raises the question: Can Ergen fulfill his promises, take on industry heavyweights, and build a nationwide, competitive 5G carrier from scratch?

The original troublemaker, looking for a path forward

T-Mobile CEO John Legere has long styled himself as the industry's rebel, but as he's set to depart from the new T-Mobile once the merger is complete, Dish chair Charlie Ergen is more than able to fill the void.

In many ways, Ergen is the original troublemaker of the operator business. Launched in the '90s as a subsidiary of satellite TV technology provider EchoStar, Ergen grew Dish to about 14 million paying subscribers at its peak about a decade ago. He managed to do so not only by undercutting the prices of cable TV operators, but also by repeatedlysuingTV networks, and launching DVR ad-skipping features as a negotiation ploy.

Despite all of this, Dish has been hit hard by cord-cutting. The company ended its last reported quarter with just 9.5 million satellite TV subscribers. Cable TV faces similar woes, but companies like Comcast aren't feeling as much of an impact on their bottom line. After all, even cord cutters need internet access.

Without such pipes to monetize, Ergen has been looking for Dish's path forward. One answer was the launch of Sling TV in early 2015. The internet-based TV service bills itself as a cord cutter-friendly alternative to cable, with some decent success: Sling TV had nearly 2.7 million subscribers at the end of September — not bad for a scrappy service launched with an unproven programming strategy.

"Charlie is an amazing and hard-driving entrepreneur who is never afraid to swing for the fences," recalled Condé Nast CEO Roger Lynch, who founded and headed Sling TV from 2012 to mid-2017. "He gave me the capital and the autonomy to build this business until it was established and large enough to integrate it into Dish."

Expect Dish to be aggressive from day one

Ergen also began amassing close to $20 billion worth of spectrum to launch a mobile service nearly a decade ago. At first, critics speculated that Dish was just hoarding spectrum to mess with its competition, resell it at a later point, or even drive up its own value ahead of a potential merger.

Then, Ergen strategically inserted himself into the T-Mobile-Sprint merger talks, at first opposing the deal and then working with regulators to force key concessions. As a result, Dish is getting up to 20,000 cell phone towers from T-Mobile, additional spectrum from Sprint, as well as the carrier's Boost Mobile prepaid business, including subscribers, 400 stores and around 480 employees. Sprint ended 2019 with close to 8.3 million prepaid subscribers.

Dish's communications team pointed to Ergen's public testimony in the case but declined to comment further.

Once the merger receives a final go-ahead from California regulators, which could be as early as April, Dish will take over Boost Mobile and run it on T-Mobile's network. "It will allow them to hit the ground running on day one," said Lightshed Partners analyst Walter Piecyk. The deal also includes some safeguards for Dish to remain competitive. For instance, if T-Mobile rolls out cheaper retail plans following the merger, Dish's wholesale pricing also goes down. The agreement "enables them to be aggressive this year," Piecyk said.

Building a nationwide network is hard

While Dish will at first rely entirely on T-Mobile's infrastructure, the company also plans to build out its own 5G network. Ergen has said that he wants to be live with 5G in one city by the end of this year, and FCC mandates call for the company to have 5G coverage available to 70% of the U.S. population by 2023. The merger agreement allows Dish to use T-Mobile's network as a backup for seven years, with phones switching back and forth between T-Mobile and Dish infrastructure.

Dish has not said yet which cities it is targeting first for its 5G rollout, but job postings suggest that Chicago, Dallas, Houston and Seattle could be among the initial targets. "If you want to light up one city by the end of the year, that's pretty doable," said Tellus Venture Associates president Steve Blum, who has been working as a consultant for local municipalities and private companies on telco-related issues for decades.

Building up a network that serves millions of consumers across the country from scratch is a lot tougher. "If the towers and fiber are in the right place, you can deploy very quickly," Blum explained. But in some areas, Dish may have to strike new lease agreements, deal with local permitting, and other red tape — a process that can take a long time and cost a lot of money.

Ultimately, Dish's commitment to building out 5G nationwide may come down to financial considerations, Blum said. "Charlie Ergen is going to make those decisions based on the numbers," he said. "He's not going to spend money to build out Weaverville."

Ergen, for his part, testified that he has commitments from banks to raise the $10 billion in capital necessary for a 5G build-out. He has also hinted at interest from outside partners, leading to speculation that Dish could team up with a tech giant. "It obviously would be helpful for them to have a strong partner," Piecyk said.

Will Ergen prove the naysayers wrong?

Ultimately, Blum is a skeptic and doubts that we'll see a Dish-run nationwide 5G network any time soon. He wagers that Ergen will ultimately sell Dish's wireless business to a big tech company or even a competitor. "He's just going to flip everything," Blum suggested. "He's putting together a really nice package right now."

Piecyk is more optimistic. "Charlie is going to prove the naysayers wrong," he said, lauding Ergen's timing, which could allow the company to leapfrog its competitors by launching purely with 5G. "There is no reason for them to put any legacy equipment in," he said. "The stars kind of aligned."

Lynch echoes that sentiment. "[Ergen] is at his best when he is competing against much bigger competitors," he said. "I wouldn't bet against him."