Throughout the course of the trial, we will endeavor to update clients on particularly important days (though not necessarily daily). Today, we saw a pretty tough day for the companies, as one would expect given that the states are putting on their side of the case. The states used the witnesses to introduce texts and emails that were helpful for the states’ argument that the unconditioned 4-to-3 merger violates the law, that T-Mobile and Sprint are direct competitors, that Sprint has other options to the merger, and that the deal could result in increased prices. In addition, the judge declined to hear opening statements and sought to curtail the witness lists, making it more difficult, in our view, for the companies to re-frame the core arguments. While nothing changed our odds, we can clearly see how the states are setting up their arguments.
In this note we discuss why we think the odds of legislation dictating critical terms of the C-Band reallocation process are greater than we had previously thought, though much depends on several critical decisions of the Congressional Budget Office (CBO). In that light, the upcoming mark-up of the Thune/Wicker Bill is also more important than we had thought, both for what it reveals about the legislation but also for what, if anything, it tells us about how CBO is thinking about whether the C-Band auction can be scored for new expenditures, whether CBO believes that the score could be aided by a faster transition, and whether CBO believes that faster transition requires significant payments to the CBA members beyond relocation expenses.
In addition, we review several recent ex partes, which to us demonstrate an alignment of the key buyers the process has not enjoyed to date, but a difference in emphasis and no details about how to achieve their mutual objectives.
On Monday, the most important trialOne could argue it was actually the trial that broke up AT&T but at that point, the wireless industry largely existed in the brilliant imagination of some engineers and a young cable executive named Craig McCaw. Wireless was considered so unimportant that the lawyer for AT&T basically gave away the cellular licenses to the Baby Bells without much thought. Because Karma has a weirder sense of humor than any of us can possibly understand, that lawyer eventually became the CEO of AT&T Wireless, which AT&T created by spending $12.6 billion to buy McCaw’s company, instead of simply having the original licenses. ever for the wireless industry begins in New York. In this Weekend Update, we provide our final notes on recent developments and how to watch the trial.
We start with a summary of a call we did with antitrust experts last week. While both predicted the States win, both were intrigued by the implications of the Companies still arguing about the deal rather than just focusing on the fix. Both also offered advice on what witnesses and issues to watch for indications of how the Judge might be thinking. We then discuss the most important outcomes and revelations of two pre-trial conferences at the end of last week, including the Judge’s own description of the issues, the parties’ different framings of the core issue and the implications of the first six witnesses, all designed, we think, to allow the States to introduce course of business documents that will undercut the Companies claim of increased competitiveness as the motive for the deal and the fix.
We review some evidentiary rulings we don’t believe will ultimately be material but one that has a potential to provide significant headline risk for the Companies. We note some filings at the FCC that go to an issue raised by the States in their pre-trial memo on the reliance of the Companies on proceedings that have not yet concluded. We conclude with a discussion of the importance of Charlie Ergen’s credibility as a witness by reviewing how another judge, in a bankruptcy proceeding, viewed his credibility.
We note that we are again splitting our Weekend Updates in two, with a separate update focused on C-Band and the upcoming Senate mark-up on related legislation being published sometime on Monday.
Continue reading “TMUS/S/DISH: Final Notes for How to Watch Before Game Time”
In another busy week, we have already published notes on C-Band (LINK) and legal issues relating to DISH’s licenses (LINK). In this note, we focus on last week’s developments on the upcoming trial about the big wireless merger. We discuss why John Legere’s upcoming resignation incrementally undercuts his credibility as a witness, how the DOJ’s surprising motion, and unsurprising loss, to disqualify the states’ outside counsel reflects Delrahim’s nervousness about the trial and incrementally undercuts the companies’ argument that the court should defer to the DOJ’s judgement, and why it might be that discovery issues focus on DT/TMUS communications. We also provide a mediation on Presidential involvement in our sector, prompted by his impact on the C-Band process and his suggestion that Apple should help with America’s deployment of 5G networks. Finally, we plan on being off the coming week (and would be very thankful if the fates make that possible) but want to wish all our readers a wonderful Thanksgiving Day holiday.
This week we were often asked whether DISH would be able to sell their spectrum licenses, like broadcasters and mobile carriers do all the time, with little FCC objection or process and no sharing of proceeds with the government,Other than, of course, taxes. or would such a sales effort to sell trigger the FCC to claim that the proceeds should largely go to the government. In this note, we detail why we think it is clearly the first.
With another big news week, we are splitting the Weekend Update into two notes; this C-Band focused one and another, to arrive Sunday night, providing an update on the merger and other telecom policy news. (We are also publishing this morning a note discussing why DISH should be able to sell its licensees without the government taking the proceeds, a question that came up a lot this week: LINK).
In this C-Band note we discuss what we have learned, and the critical questions still to be answered, in the first week of the FCC’s new C-Band direction (which we refer to as Version 3.0) of running the auction itself. We think the initial stakeholder and political reactions demonstrate that the question of the private v. public auction is no longer in play, that CBA’s leverage to obtain funds lies not in threats about litigation or the narrative about how political leadership is depriving America of leadership in 5G, but only in its leverage related to the time to clear 300MHz, that the process is likely to go down both a legislative and regulatory track but the FCC is likely to finish before Congress, probably rendering Congressional efforts moot. We think both tracks will be bipartisan, which is important for reducing any political risk of election results causing another rethink and a C-Band version 4.0. We don’t have new insight into what may be the most important investment question, which is which enterprises the FCC believes should receive funds beyond relocation expenses and, further, between those enterprises, how should any funds be sized and allocated.
Once those questions are answered, however, there are multiple ways of effectuating that distribution though each carries different political and litigation risks. Part of the calculus requires estimating the results of the auction and calculating those requires understanding the other spectrum bands that will also be coming into the market.
Over the weekend, we wrote that the C-Band policy was about to move to Version 3.0. (LINK) Yesterday, a one-two punch from Chairman Pai and Senators Thune and Wicker set the framework for that new version.
First, in a tweet, Pai committed to an FCC auction by the end of 2020. The tweet was consistent with our weekend view that the FCC order will not be circulated until early next year.
Second, Senators introduced legislation that would also require an FCC auction by the end of 2020 and in addition, “require the FCC to capture for the taxpayer at least 50 percent of the fair market value of the spectrum.” That means that the most CBA could obtain for its members would be an amount equal to 50% minus relocation expenses to other current users. Unlike the CBA proposal offered Friday, the proceeds would be pre-tax. As we had discussed, Eutelsat saying that the satellite companies should get at least 50% may have seemed to them like it was setting a ceiling but to members of Congress, that was the floor. (LINK)
So what happens now? We will let our colleague, Vivek Stalam, discuss the financial implications for Intelsat in a separate note, while we focus on the new policy direction.
For investors last week, there was only one story that mattered: the last-minute change in signals from the FCC regarding C-Band and the subsequent drop in Intelsat stock. In this weekend update, we analyze the causes and endgame of the shift. As we have warned, it appears that Congress (particularly Senator Kennedy) and the White House are now material players on the issues of who runs the auction and how the proceeds are distributed. While CBA attempted to resuscitate its plan with a specific offer to transfer funds to the Treasury, we think that effort will likely fall in the category of too little, too late, as the FCC moves in towards an FCC run auction with more proceeds likely to go to the Treasury. CBA, however, retains significant leverage and is still in a position to achieve much of their original goal. While much of the discussion has been about who runs the auction, we point out how an FCC run auction can provide significant funds to various stakeholders in ways that also directly are tied to achieving public purposes. We also discuss how details of the transition are likely to move towards the front-burner in the next round of public comments. Finally, we briefly discuss a quiet week, from an investor perspective, in the big wireless deal and why Labour’s proposal to nationalize British Telecom will not travel across the Atlantic.
Continue reading “C-Band: Four Corners Defense Breaks; Brings On C-Band Policy 3.0. Plus, Nothing (Much) New on TMUS/S/DISH and Quick Thought on Potential Impact of Labour Urging Nationalization of BT”
In this weekend update, we explain, among other things, why the FCC order on TMUS/S may mean more for future deals than the one it approved, how the new New T-Mobile commitments may fit into their trial strategy, what to expect in terms of unexpected facts emerging at trial, and how the DOJ’s late inning Hail MaryForgive the mixed metaphor, but the effort does remind us of trying to win a baseball game by throwing a pass. See details below. to disqualify the states’ legal team is unlikely to succeed (but if it does it would have a big, though not entirely predictable, impact.) On the C-Band side, we review the different approaches of CBA, Eutelsat, AT&T, NAB and Senator Kennedy and how each highlights the different legal and political risks that alternative FCC policies would create. With just a week and a half to go before the likely publication of the proposed FCC order, there is still significant disagreement between the stakeholders as to how detailed the order should be as to the sales process and the transition, with AT&T continuing to support the CBA effort in terms of vision while criticizing the lack of details and laying a foundation for why the lack of details spells litigation trouble. Further, CBA still is staying silent on what it means by a significant voluntary contribution, while Eutelsat provides more details on its 50% ceiling (that members of Congress would see as a floor).
As expected, the FCC has issued an Order that approved the T-Mobile / Sprint deal (LINK). In this note, we run through a few quick thoughts on the Order, and why it may not help the companies much in the state AG lawsuit.