Wall Street wary of Dish Network’s plan to replace Sprint

Wall Street is starting to throw cold water on billionaire Charlie Ergen’s prospects for building the nation’s fourth-largest wireless network — which is bad news for T-Mobile’s planned $26 billion merger with Sprint.

Hedge funds, financiers and lawyers hired as Wall Street consultants are starting to poke holes in a deal, announced Friday, to give Ergen’s Dish Network the tools it needs to replace Sprint as the nation’s fourth-largest cellular carrier.

Sources digging into the Dish deal — hashed out to win Justice Department approval for the merger — say they are starting to uncover weaknesses that are sure to be seized upon by a group of 13 state attorneys general seeking to block the T-Mobile/Sprint marriage.

One issue is T-Mobile’s power to determine how much it will charge Dish to lease its spectrum while Dish builds out its own network, sources said. Also of concern is Ergen’s poor track record of deploying the spectrum he already owns, critics said.

The biggest concern, however, is that weaknesses in the plan to prop up Dish will used by AGs to block the merger and maintain Sprint as the nation’s fourth-largest carrier.

“There is nothing in the consent decree that should cause the states to drop their swords,” said a financier who is seeking to help Dish raise money to build out its network.

On Friday’s conference call with investors, T-Mobile execs said they will be required to lease their spectrum to Dish for seven years for a “commercially reasonable” price that will also help T-Mobile make money.

Critics say a more fool-proof approach would have been to sell Dish spectrum for a set number of years for a predetermined price. This would have given Dish the incentive to win as many customers as possible to pay off the lump sum, including by slashing cellular prices.

“With the kind of leasing deal they reached, you can’t cut your pricing,” the financing source said of the deal in place now.

Another weak link is Ergen’s history of missing deadlines set by the Federal Communication Commission to deploy the valuable, but unused, spectrum he already owns, sources said. Ergen is required to build out 70 percent of wireless spectrum in some of his potential coverage areas by March 2020, but has missed FTC deadlines in 2017 and 2018.

This is sure to be used by the 13 state AGs to undermine Ergen’s credibility, including his past promises to the government, sources said.

If the AGs prove their case, set to go to trial on Oct. 7, the court could seek to block the merger.

The head of a hedge fund who recently hired two attorneys to look into the Dish deal says one hired gun gave the state AGs a 55 percent chance of winning their lawsuit and blocking the T-Mobile/Sprint merger.

The market believes the T-Mobile deal has about an 80 percent chance of getting cleared, the hedge fund manager added.

Indeed, shares of T-Mobile and Sprint, which soared Friday by 5.4 percent and 7.3 percent, respectively, closed down on Monday, suggesting investors are growing skeptical of its success.

T-Mobile closed down 2.2 percent, at $82.38, while Sprint closed 2.6 percent lower, at $7.78 a share.

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