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Dish gets DoJ support for 800 MHz extension

The U.S. Department of Justice (DoJ) supports Dish Network’s request for more time to buy 800 MHz spectrum from T-Mobile, but it says seven more months is sufficient rather than the 10 months that Dish had requested.

In a September 18 filing with the U.S. District Court for the District of Columbia, the DoJ said a modest extension of the deadline for Dish to acquire the spectrum licenses will serve the competition goals of the final judgment that enabled Sprint to merge with T-Mobile.

The DoJ referred back to a 2013 petition that T-Mobile filed with the FCC when it came time to craft rules on the auction of 600 MHz spectrum. Back then, T-Mobile argued that a carrier can cover more area and offer better in-building service using lower-band spectrum with fewer cell sites.

That same basic point remains true 10 years later, the DoJ said, adding “there is no more cost effective way for Dish to catch up to the Big Three carriers and replace the competition that was lost when T-Mobile acquired Sprint than to purchase the 800 MHz spectrum.”

Under the final judgment, Dish has an option to buy the 800 MHz licenses from T-Mobile for about $3.6 billion, but it doesn’t currently have the finances to do that, in part due to the ramifications of Covid 19 and higher interest rates.

In its opposition to Dish’s request for more time, T-Mobile argued that Dish should have factored in the possibility for higher interest rates and that extending the terms means that T-Mobile will need to pay to maintain the licenses for longer.

But the DoJ said no one involved in negotiating the final judgment in July 2019 could have foreseen the global pandemic and resulting macroeconomic environment that have weakened Dish’s ability to purchase the spectrum. Rather, the DoJ sees it as a small adjustment that makes it more likely for Dish to succeed as a fourth facilities-based competitor.

Plus, giving Dish until April 1, 2024, to acquire the 800 MHz spectrum should not prevent T-Mobile from auctioning and divesting the spectrum as soon as reasonably practicable, according to the DoJ’s filing.

While it will be up Judge Timothy Kelly to decide if Dish gets more time, analysts at New Street Research (NSR) think the odds have now shifted significantly in favor of a seven-month extension. “We think the court is likely to take the clues from the DoJ filing and grant the modified extension request,” wrote NSR’s Blair Levin in a report for investors today.

NSR laid out a scenario last week where they think all the players could score a win. For example, Dish could use two 600 MHz licenses in New York as partial consideration for the purchase of the 800 MHz spectrum. The two licenses are worth $2 billion based on the valuation established in the Comcast and Columbia Capital transactions; Dish would still need to raise an additional $1.6 billion.

That swap would likely require the consent of the 11.75% bond holders, and NSR analyst Jonathan Chaplin said it looks like a positive for both Dish and bond holders, noting that bond holders would see their loan-to-value (LTV) improve to 27% in the transaction. For T-Mobile, it would bring spectrum it needs in a critical market.

No doubt, Dish and T-Mobile have discussed this sort of transaction and failed to reach an agreement, Chaplin said, adding that it’s not clear that another seven months would change things sufficiently for a deal like that to get done.

However, “if these two companies fail to get this done, someone would be silly,” he said.

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