T-Mobile (NASDAQ:TMUS) and Sprint (NYSE:S) overcame the latest roadblock in their efforts to merge. The Justice Department approved the merger based on an agreement between the two companies and DISH Network (NASDAQ:DISH) to establish a fourth wireless network. DISH will pay between $5 billion and $6 billion for various wireless assets from the two companies, as well as the rights to use New T-Mobile's wireless network for seven years.
But the merger still isn't a done deal. All parties involved have a lot of work to do to meet the Justice Department's and the FCC's requirements for approving the deal.
States still suspect
The biggest hurdle still facing the new three-way deal is several state attorneys general are suing to block the merger still. Fourteen states and the District of Columbia originally opposed the deal, but five have dropped their suit and sided with the DOJ's decision.
A trial date is currently set for Oct. 7, so we're still a couple months away (at least) from the companies moving forward with their plans. The trial could be delayed further due to the new agreement with DISH, and T-Mobile and Sprint might not complete their merger until next year.
The states oppose the merger on the basis that combining Sprint and T-Mobile will harm competition. The deal with DISH complicates the case. It's much harder to prove the deal hurts competition when a new competitor will emerge as a result of the merger.
Even if T-Mobile and Sprint have a stronger case, they'll still need to get through the trial before they can move forward.
What lays ahead for New T-Mobile
New T-Mobile, as management is calling the result of the merger, will have a lot of work to do if and when it closes the deal. The companies promised the FCC it would quickly build out a 5G wireless network and also offer home broadband internet service to a significant portion of the population.
New T-Mobile will rely on Sprint's trove of unused wireless spectrum to build out the 5G network. It promised to cover 97% of the population within three years and 99% within six years. Additionally, 90% of consumers will be able to achieve speeds greater than 100 Mbps on the network, with 99% seeing speeds of at least 50 Mbps.
The companies agreed to sell 14 MHz of Sprint's 800 MHz band spectrum to DISH, but it will rely more on high-band spectrum in order to achieve faster speeds and greater network density/capacity.
That greater capacity is key to its home internet plans. New T-Mobile will cover 9.6 million customers with home broadband service within three years and 28 million within six years of closing the deal. T-Mobile has gotten a head start, offering select customers in rural markets home internet service.
DISH's promise to be a real competitor
As part of the approval, DISH is committed to deploying its own 5G network that reaches 70% of the population by 2023. While DISH has a lot of spectrum licenses at its disposal -- even more with its agreement to acquire some of Sprint's 800 MHz band spectrum -- it doesn't have the capital or experience of deploying that spectrum.
It'll get some help, however, as New T-Mobile has agreed to make 20,000 cell sites available as part of the agreement. Still, DISH will have to spend a lot of money to build out a network that quickly.
DISH already has $14.3 billion in long-term debt on its balance sheet, and its agreement to acquire the Boost and Virgin brands along with the spectrum, cell sites, and retail locations from New T-Mobile will set it back another $5 billion or $6 billion. It's becoming highly leveraged, and raising additional capital may be quite expensive.
If DISH fails to meet its commitment, it owes the government $2.2 billion. That said, DISH has found creative ways to skirt around government requirements or extend deadlines in the past. But considering the rapid decline in its satellite TV business and the amount it's already invested in wireless spectrum, it makes sense for DISH to actually pursue the wireless market even if it's expensive.