Simon Baker
Simon Baker (Senior Research Director, Mobile Phones/Consumer Devices)

5G as nationwide mobile market entry? Already? In America? A deal has been agreed by the US government which will allow a new operator to start in the US — just on 5G. Whether DISH can disrupt the existing group of mobile operators may depend on finding a major new partner and playing the market entry game in a very big way.

DISH, up to now an American television operation distributed initially via satellite and then more recently with a streaming service, is on the verge of becoming a nationwide 5G mobile operator.

The move is the result of a lot of horse trading over the impact on the competitive environment in the US of established mobile operator T-Mobile’s takeover of Sprint, which would reduce the number of nationwide mobile operators from four to three.

US Government Wants a New Network, to be Focused on 5G

The US Justice Department was not so keen on reduced competition, and together with other American authorities only let the deal through when DISH agreed to expand its existing 5G plans for an Internet of Things network into a full-blown consumer operation.

The deal involves DISH embracing a $5 billion package that includes the purchase of Sprint’s prepaid business and access to T-Mobile’s mobile network while DISH sets up its own.

The Federal Communications Commission gave its final go ahead on October 16, though the deal still faces legal action by several states which oppose the T-Mobile/Sprint tie up.

DISH Has Built up Spectrum Over Two Decades

For DISH the deal is opportunistic, but also the culmination of two decades of building up frequency resources by DISH’s founder, Charlie Ergen.

According to DISH, it has invested more than $11 billion in wireless spectrum since 2009 and made related acquisitions of another $10 billion. Now that spectrum may finally be used.

5G sounds a pretty unlikely way for a lone entrepreneur to enter the US mobile market. Taken at its extreme, at its highest frequency band of mm wave towers that may only cover a square kilometer, it would take 160,000 of them to offer 5G coverage just across all built up areas in the US.

But Ergen holds spectrum at more advantageous frequencies, notably in the 600-800MHz band, which could be suitable for 5G in less built up areas. In total DISH holds 95MHz of nationwide frequency, including in the 1,915-2,200 MHz (known as AWS — Advanced Wireless Service — in the US).

According to a comparison put together by the Cowen investment bank, DISH has as much mid-band spectrum as either T-Mobile and Verizon, and in low band only comes second to T-Mobile. Its extensive frequency in the mid bands means it can offer service in what is known as “Sub 6” (GHz) — which is the most suitable for early 5G deployment with its balance of capacity and reasonable cell coverage areas.

A Scrappy Player That Has Outmaneuvered Corporate Rivals

If he pulls it off, Ergen’s bid will be the final touch to a career of many business sleights of hand. He built up a direct to home satellite business from nothing where his competitor was a multibillion-dollar defense industry company with comfortable government contracts.

DISH has lots of experience as the scrappy underdog offering cheaper packages and options to consumers in the American cable and satellite business. It has revenues of around $14 billion a year, but they are declining by around 5% a year as the direct to home satellite business wanes.

DISH Needs More Scale and Resources

Ergen has suggested that he can build the tower network and infrastructure he needs for $10 billion, a figure which has been derided by some industry commentators.

Separate from whether that is too optimistic a figure, my American colleagues generally feel that the DISH brand is not strong enough for a mobile network, and that a big partner will be necessary to turn Ergen’s 5G frequencies into a viable business able to compete with America’s three major, and entrenched, mobile operators.

The fact that DISH’s opportunity was brought about by the desire of two of them, T-Mobile and Sprint, to merge to gain economies of scale would not seem to augur well for a new player to step in to make it four players once again unless it has some very deep pockets.

There has already been one failure. In 2014, Ergen bought up the debt of financier Philip Falcone’s LightSquared venture, which aimed to enter the US mobile market via 4G, using some spectrum that was originally intended for satellite applications. Eventually, LightSquared collapsed before its network was built, largely due to the interference its signals would have caused with GPS receivers.

A Wily Player Will Need to Show His Hand

As part of the new agreement with the FCC, Ergen has agreed not to sell his company within the next three years, though it could partner with someone else. If a partner does emerge, it might very well be one of the biggest names in US tech, with Amazon and Google among the candidates being speculated about.

Ergen is well known as a poker player, and will no doubt play his hand very calmly, but play it eventually he must, for the Federal Communications Commission in the US will eventually take spectrum back from him if it does not get used.

America Lags in 5G

Currently the US lags in the pace of its 5G rollout, with IDC’s Worldwide Mobile Phone Tracker indicating that only a tenth of the number 5G smartphones were sold there in the second quarter as in market leader South Korea, where the number exceeded one million.

Despite admonishments by US politicians about how important the technology will be to America’s place in the world, the US is not well set up for 5G at all, with no major 5G infrastructure vendor of its own, and a huge geography and expansive suburban way of life, which counts against easy and effective deployment of 5G networks, with their typically small coverage areas.

US Telecoms is Risk Averse

If this 5G rollout needs to rely on the established group of telcos — AT&T, Verizon, and T-Mobile/Sprint — it could be quite a time coming. These operators are arguably showing more marketing bluster than action in their 5G rollout, with Verizon held back by having mainly mm wave spectrum, which requires lots of closely spaced towers.

While nationwide market entry in mobile through 5G in a country as big as the US sounds unlikely, market entry with 4G also looked unlikely at the time. But then the unlikely happened, and it took place not just in a major and large country, but also in a poor one, India. There the 4G-only Reliance Jio network now has over 320 million subscribers and is the largest mobile operator in the country.

The scale of the rollout that Reliance embarked upon is sobering. It took about $8 billion to build out its network, on which service started at the end of 2015. It involved setting up 140,000 base stations, which were installed at a rate of around 10,000 per month. In the US, gaining access rights for the towers will be a major challenge, while the established mobile network rivals have far fewer new ones to set up.

To achieve the disruption dynamic in 5G in the US that Jio did in India in 4G will entail massive risk, the sort that Elon Musk took on in challenging an entrenched defense establishment through his Space-X venture in launching satellites. America is not short of maverick billionaires, but to date they have not played big in telecoms, just in the services that run on them. Here is one opportunity for that to change.

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