'We Can't Wait' to Compete Against T-Mobile, Says Ergen, as States Target His Credibility

The assets Dish Network would gain through DOJ’s “remedy” with T-Mobile/Sprint would be a “catalyst” to building out a 5G network “faster” than otherwise possible, testified Dish Chairman Charlie Ergen Wednesday at the T-Mobile/Sprint bench trial in U.S. District Court in lower Manhattan. “We’re going to need 5G to compete against the big three incumbents,” including AT&T, Verizon and the new T-Mobile, said Ergen. “We can’t wait” to compete against T-Mobile, he said.

State plaintiffs spent more than an hour of cross-examination trying to damage Ergen’s credibility as a would-be T-Mobile competitor by bringing up historical examples of allegedly bad Dish behavior or raising inconsistencies between his pretrial deposition and trial testimony. Asked why a bankruptcy court in the LightSquared case said Dish had a “troubling pattern of non-credible behavior,” Ergen said it was because the court didn’t believe Dish claims of LightSquared interference were credible. The evidence since has “validated” Dish’s position, he said. Also brought into evidence were statements from then-FCC commissioner, now Chairman Ajit Pai, criticizing Dish for having made a "mockery" of the designated-entity process during the AWS-3 spectrum auction.

Ergen exchanged texts and emails in May and June with DOJ Antitrust Division Chief Makan Delrahim, first about Dish’s concerns with T-Mobile/Sprint, later to discuss the possible remedy agreement, plaintiffs showed. Delrahim texted Ergen June 10, urging him to reach out to his “senator friends” so they could contact Pai and enlist his support for the DOJ remedy. Ergen testified he spoke to Sen. Cory Gardner, R-Colo., asking him to contact Pai, as Delrahim requested. Ergen also spoke with Senate Majority Leader Mitch McConnell, R-Ky., but didn’t ask him to contact the regulator, he said.

Asked for the purpose of enlisting Gardner to lobby for Pai’s support, Ergen said the senator could be helpful because “he knows our company and he knows our plans.” That didn’t square with Ergen’s deposition, said plaintiffs, when Ergen testified he contacted Gardner because 5G is complicated technology that’s “not well understood” by the public or at the FCC, “not even by the chairman.” Courtroom spectators erupted in laughter when Ergen was asked whether the suggestion was that Gardner could educate Pai on 5G. The executive didn’t answer.

Plaintiffs appeared to probe Ergen about hints of possible DOJ improprieties. When Ergen was asked if Delrahim provided him with his personal email address, plus that of his DOJ account, he responded Delrahim had given both. But Ergen said he couldn't recall receiving any Delrahim emails from anything other than the DOJ account.

Ergen testified he grew “upset” June 22 when hearing “rumors” that T-Mobile went to the FCC to accuse Dish of acting in “bad faith” over the proposed DOJ remedy. The rumors said Ergen was demanding a $1 billion payment from Sprint as a condition for proceeding with the deal. With Ergen’s denial that he demanded such a payment, plaintiffs produced a June 27 email in which he asked for SoftBank’s help in procuring a $1 billion loan from JPMorgan.

There’s a “major distinction” between a demand for $1 billion cash and seeking help in procuring a $1 billion interest-bearing loan, defended Ergen. Enlisting SoftBank’s help for a JPMorgan loan “comes at a lower rate,” said Ergen. “We wanted to be sure we had plenty of money to buy Boost and continue to operate our business,” he said. “We had enough capital on our balance sheet, but we wanted margin.” Under redirect examination, Ergen admitted it was "probably not normal" to seek JPMorgan funding through a SoftBank intermediary, but that Dish had done so with DOJ's knowledge and approval.

In using the T-Mobile network for seven years, Dish will pay T-Mobile unspecified cents on the dollar for each Boost broadband customer it signs up, said Ergen. That won’t obviate each company’s desire to put the other out of business, he said. “Outside of mischief, they’ll be aggressive in the marketplace,” and so will Dish, he said. Of potential subscribers, “if they pay their bill, we want them to be a Dish customer,” said Ergen. “If they don’t pay their bill, we want them to be a T-Mobile customer.”

Asked by Judge Victor Marrero why Ergen originally opposed T-Mobile buying Sprint on “structure,” Ergen responded he didn’t want the market to go from four to three incumbents because it would “hamper” Dish’s entry into broadband. “The status quo was OK,” said Ergen. “Sprint was a bit stronger as a company 20 months ago.” It since has grown “less enthusiastic about the business,” having curtailed investment, and is laying off employees, he said.

On Dish’s broadband network buildout, “we’ve been working on this for 10 years,” said Ergen. He’s reminded, he said, of the saying attributed to Abraham Lincoln that anyone planning to spend six hours chopping down a row of trees had better spend the first four hours sharpening the ax. “We’ve got a pretty sharp ax,” Ergen said. “There’s a chance we fail. It’s a tough business out there, but we’re a tough company too.”

“Political intrigue that didn’t quite land for the states,” said New Street’s Vivek Stalam of Ergen’s text exchange with Delrahim about calling in senators. Ergen appeared strong on cross-examination in the face of tough evidence, the analyst wrote Wednesday after the executive finished testifying. The judge remained focused on possible conflicts of interest between Dish and T-Mobile since they would compete while the first would rely on the second's network.

Carriers “made progress” this week arguing Dish would be better than Sprint as the No. 4 wireless carrier, New Street Research’s Blair Levin wrote Wednesday before states cross-examined Ergen. “Sprint executives largely held up regarding Sprint’s difficulties and DISH’s CEO did a strong job of articulating his own plan.” A “big unknown” is what Ergen meant Tuesday when he hinted at talks between Dish and some top companies about the wireless play, the analyst emailed investors.

Ergen’s buildout plan is “modestly negative” for the tower industry, emailed New Street’s Spencer Kurn Wednesday. “We had modeled Dish building to 30,000 sites by 2023; however, it now appears that building to only 15,000 sites by 2023 is the most likely scenario.” He lowered to $300 million from $700 million his estimate for how much revenue Dish would bring to the tower industry by 2023.

Three banks told Dish last week they probably would set aside $10 billion for the company's 5G buildout, which the MVPD estimates would cost $8 billion-10 billion, Ergen testified Tuesday on direct examination. "It would be financial suicide" for Dish not to build out 5G when T-Mobile/Sprint closes, he said. "We are not suicidal.”

Morgan Stanley and Deutsche Bank each wrote letters Dec. 9 saying they’re highly confident they can commit $10 billion for the Dish network. JPMorgan Chase said the same in a Dec. 10 letter. Gibson Dunn’s Richard Parker, representing carrier defendants, showed the letters as exhibits in the courtroom in lower Manhattan.

Judge Marrero asked about allegations that Dish previously didn't meet spectrum buildout commitments to the FCC. Dish never missed a “final milestone” pledge, but such claims show big companies seeking to "cast doubt" on possible new entrants, Ergen said. The FCC knows Dish's record and said OK, he added.

"We will compete with the largest wireless operators in the United States ... from day one," Ergen said. Dish will be ready to sell service through a wholesale arrangement with T-Mobile about 30 days after the deal is OK’d, he said. Boost customers will pay less for a superior network, he said. The T-Mobile mobile virtual network operator (MVNO) deal costs little and having a "clean sheet of paper” to build a fifth-generation network from scratch reduces costs compared with upgrading older equipment as other carriers must, he said.

Ergen expects Dish 5G facilities to hit their first city in the first year, he said. Dish will add a dozen more cities in 2021, and the network will be in more than 100 cities, covering at least half the population, in 2022, the executive said. The MVNO deal gives Dish unlimited capacity for three years, with wholesale rates that T-Mobile certified are the lowest it's ever sold at, Ergen said.