Mergers and Acquisitions

Posted on by Roger Entner

The U.S. wireless industry has officially entered a new era, catalyzed by a landmark transaction that confirms the final collapse of EchoStar’s long-held ambition to become a fourth facilities-based carrier. EchoStar has entered into a definitive agreement to sell its complete portfolio of prized AWS-4 and H-block spectrum licenses to SpaceX for approximately $17 billion. The deal, consisting of up to $8.5 billion in cash and an equivalent amount in SpaceX stock, also includes a provision for SpaceX to fund approximately $2 billion of EchoStar’s debt interest payments through late 2027 and establishes a long-term commercial agreement for SpaceX to provide its next-generation Starlink Direct-to-Cell (D2C) service to EchoStar’s Boost Mobile subscribers.

This agreement is not merely a corporate restructuring; it is the definitive end of a regulatory dream and the formal beginning of a new, more complex competitive paradigm. The transaction solidifies the U.S. terrestrial wireless market as a stable, three-player market while simultaneously igniting a new, asymmetric competitive front in satellite-to-cellular connectivity. SpaceX, now armed with dedicated, purpose-built spectrum for Mobile Satellite Service (MSS), and its primary terrestrial partner, T-Mobile, possess a significant first-mover advantage in the race for ubiquitous coverage. This move elevates the D2C value proposition from a niche, emergency-only feature into a core, marketable network attribute.

The cascading effects of this deal will reshape the strategies of every major player for years to come. For EchoStar, it marks the final pivot from a would-be network operator to a “hybrid MVNO” and a significant shareholder in SpaceX, a stunning financial victory for its chairman, Charlie Ergen, born from the ashes of operational failure. For Verizon and AT&T, it provides urgency to accelerate their own D2C counter-strategy with partner AST SpaceMobile. Finally, the transaction presents a novel challenge for regulators. The review will be forced to look beyond traditional concerns of terrestrial spectrum consolidation and grapple with the profound implications of SpaceX’s vertical integration, examining its dominance in the satellite launch market and its new, powerful position in the downstream market for satellite connectivity services. The two-front war has begun.

I. The Deal That Ends an Era: Deconstructing the EchoStar-SpaceX Agreement

The definitive agreement between EchoStar and SpaceX represents one of the most significant strategic transactions in the recent history of the U.S. telecommunications sector. Its architecture reflects the unique financial positions and strategic imperatives of both companies, transferring a uniquely valuable set of spectrum assets that will power a new generation of satellite services and formalizing a commercial alliance that provides a lifeline to a struggling wireless brand.

Financial Architecture and Valuation Analysis

The transaction is structured to provide EchoStar with immediate financial relief and long-term upside, while allowing SpaceX to acquire a critical strategic asset without depleting its capital reserves needed for its ambitious launch and satellite manufacturing programs. The core terms of the agreement are as follows :

  • Total Consideration: The deal is valued at approximately $17 billion.
  • Cash Component: SpaceX will provide up to $8.5 billion in cash.
  • Stock Component: SpaceX will provide up to $8.5 billion in its own stock, with the valuation fixed as of the date the definitive agreement was signed.
  • Debt Servicing: In a crucial provision that addresses EchoStar’s immediate liquidity crisis, SpaceX has agreed to fund an aggregate of approximately $2 billion in cash interest payments due on EchoStar’s substantial debt through November 2027.

This 50/50 cash-and-stock structure is a work of strategic financial engineering. A pure cash deal of this magnitude would place immense strain on SpaceX, a company with massive and continuous capital expenditures for its Starship development and Starlink constellation deployment. Conversely, a pure stock deal would have been unacceptable to EchoStar’s creditors, who require cash to service the company’s more than $26.4 billion in total debt. The balanced split provides an elegant solution. SpaceX preserves vital capital for its core operations, while EchoStar secures sufficient immediate liquidity to manage its most pressing debt obligations and stabilize its financial footing.

Furthermore, by accepting a significant equity stake in one of the world’s most valuable private companies, EchoStar Chairman Charlie Ergen has transformed what could have been a simple liquidation of assets into a long-term investment. This move aligns the financial interests of both parties in the success of the D2C venture that this very spectrum will empower. It gives EchoStar and its shareholders continued participation and upside potential in the high-growth satellite connectivity ecosystem, effectively hedging the sale of its own ambitions against the success of its acquirer.

Asset Deep Dive: The Strategic Value of AWS-4 and H-Block Spectrum

The intense pursuit of these specific licenses by SpaceX was driven by the unique and irreplaceable nature of the AWS-4 band. While the H-block licenses are a valuable addition, the AWS-4 spectrum—encompassing the 2000-2020 MHz uplink and 2180-2200 MHz downlink bands—is widely considered the “golden band” for D2C services.

Its value stems from its history and technical characteristics. Unlike repurposed terrestrial spectrum, such as the sliver of T-Mobile’s PCS G-block currently used for the beta T-Satellite service, the AWS-4 band was originally allocated for Mobile Satellite Service (MSS). The propagation physics of both bands are ideal for the challenges of space-to-ground communication, making it far more efficient for connecting satellites to standard smartphones. More importantly, its existing regulatory framework as an MSS band provides a more direct and less contentious path for satellite use, sidestepping many of the complex technical and legal challenges associated with using terrestrial-designated bands from space under the FCC’s new Supplemental Coverage from Space (SCS) framework.

By acquiring the entire portfolio of these licenses, SpaceX secures exclusive, nationwide rights to this optimal spectrum. This acquisition is transformative, enabling SpaceX to develop and deploy a next-generation Starlink D2C constellation capable of moving beyond the limitations of the current text-only service. With dedicated, purpose-built spectrum, SpaceX can now credibly pursue its roadmap of offering reliable voice, streaming-grade data, and robust IoT capabilities directly to unmodified smartphones, a quantum leap in service capability.

The Commercial Alliance: Defining the Future of Boost Mobile and Starlink D2C

A core component of the definitive agreement is the establishment of a long-term commercial alliance. This partnership will enable EchoStar’s Boost Mobile subscribers to access SpaceX’s next-generation Starlink D2C service, with the connection being managed through Boost’s own cloud-native 5G core network. While seemingly a straightforward value-add for customers, this commercial agreement serves multiple, layered strategic purposes for both companies and for the deal’s regulatory prospects.

For EchoStar, the alliance provides a desperately needed lifeline and a unique point of differentiation for its struggling Boost Mobile brand. Facing relentless subscriber losses and the decommissioning of its own physical network, Boost can now market a truly innovative feature—ubiquitous satellite connectivity—to stanch churn and potentially attract new customers in the hyper-competitive prepaid market. It allows EchoStar to maintain a narrative of being a technology-forward competitor even as it fully transitions to a “hybrid MVNO” model, reliant on the networks of its rivals. It still does not solve Boost Mobile’s remarkable inability to sell its services successfully.

Most critically, this commercial component is a masterful piece of regulatory strategy. The preservation of Boost Mobile as a distinct competitive entity, now enhanced with a unique satellite offering, provides essential political cover for the transaction. It allows the Department of Justice (DOJ) and the Federal Communications Commission (FCC) to approve a deal that otherwise permanently cements a three-player terrestrial market. Regulators can plausibly argue that they have preserved a “fourth wireless competitor,” even if that competitor no longer owns a radio access network. This framework directly mirrors the “hybrid MNO” model established in EchoStar’s prior spectrum sale to AT&T, creating a consistent and defensible regulatory precedent that will ease the path to approval.

II. EchoStar’s Final Chapter: From Contender to Catalyst

The sale of EchoStar’s most valuable spectrum assets was not a strategic choice but an inevitability, the culmination of years of financial strain, commercial missteps, and overwhelming regulatory pressure. The company’s journey from a government-mandated fourth carrier to a motivated spectrum broker is a stark cautionary tale about the brutal economics of the modern wireless industry. Yet, for its chairman, it represents the profitable conclusion to a decades-long speculative bet.

Anatomy of a Forced Sale: Financial Distress, Network Failure, and Regulatory Pressure

The fire sale of EchoStar’s spectrum was precipitated by a combination of three fatal blows that left the company with no viable path forward other than liquidation.

First, the company’s financial position had become untenable. Saddled with a total debt load exceeding $26.4 billion, EchoStar reported a net loss of $306 million in the second quarter of 2025 alone. The financial distress grew so acute that the company began missing multi-million dollar interest payments, a clear signal of a looming liquidity crisis. The post-pandemic rise in interest rates had closed the window for the cheap financing necessary to fund a nationwide network buildout, leaving the company hemorrhaging cash from its wireless division and presiding over a legacy pay-TV business in secular decline. The inclusion of a $2 billion interest payment provision by SpaceX in the final deal underscores the severity of this financial pressure.

Second, EchoStar’s flagship strategic initiative, a technologically advanced, greenfield 5G Open RAN network, was a commercial catastrophe. Despite earning technical praise for its rapid deployment, the network failed to attract a critical mass of subscribers, becoming a “ghost town” that generated no meaningful revenue or positive cash flow. This failure proved that simply building a network is not synonymous with building a successful wireless business. The surrender was signaled definitively when the company laid off 90% of its wireless engineering organization following its initial spectrum sale to AT&T, an irreversible move away from any serious network ambitions.

Finally, the FCC, under Chairman Brendan Carr, delivered the coup de grâce. Prompted by public questions from Elon Musk about why EchoStar was allowed to hold valuable spectrum without fully utilizing it, the commission launched a high-profile campaign against the company’s “spectrum squatting”. This regulatory pressure, amplified by relentless lobbying from SpaceX, initiated formal inquiries into EchoStar’s buildout compliance and effectively froze the company’s ability to raise capital. Cornered financially and regulatorily, Chairman Charlie Ergen was forced to abandon his decades-long strategy of hoarding spectrum, leaving a sale as his only remaining option. Both the AT&T and SpaceX deals are explicitly framed by EchoStar as necessary steps to resolve these pending FCC inquiries.

The Definitive Pivot: Termination of the MDA Space Contract

If any doubt remained about EchoStar’s complete and total surrender of its network infrastructure ambitions, it was erased by a single, decisive action that occurred concurrently with the SpaceX deal announcement. On September 8, 2025, EchoStar issued a termination for convenience notice to MDA Space for a major satellite constellation contract that had been announced just five weeks prior, on August 1, 2025.

This sequence of events reveals the stark, binary choice the company faced. The initial MDA Space contract was a bold statement of intent, committing EchoStar to a multi-billion dollar project to build its own Low Earth Orbit (LEO) satellite constellation for D2D services, positioning itself as a direct competitor to Starlink. It was the “build” path. The subsequent termination, explicitly cited as the result of a “sudden change to EchoStar’s business strategy and plan in the wake of spectrum allocation discussions with the Federal Communications Commission,” was the definitive pivot to the “sell” path. This was not a gradual strategic evolution but an abrupt reversal. The deal with SpaceX made building its own constellation both unnecessary and impossible. The termination of the MDA contract is the final, irrefutable evidence that EchoStar has permanently exited the network infrastructure business, both on the ground and in space.

The Financial Epilogue for Ergen: A Masterclass in Spectrum Arbitrage

Despite the spectacular operational failure of the fourth-carrier project, the great spectrum reshuffle represents an immense financial victory for Charlie Ergen. Over several decades, he masterfully acquired a vast portfolio of spectrum licenses, often at prices far below today’s market value. The recent sales are the culmination of this long-term arbitrage strategy.

The August 2025 sale of 600 MHz and 3.45 GHz spectrum to AT&T netted approximately $23 billion, a price tag roughly $9 billion higher than what EchoStar originally paid for those licenses. Combined with the approximately $17 billion transaction with SpaceX, the total proceeds from the spectrum liquidation will be around $40 billion. This sum is more than sufficient to retire EchoStar’s entire $26.4 billion debt load, with a substantial multi-billion dollar profit remaining for Ergen and the company’s shareholders. While his dream of being a wireless network king is dead, the poker player has walked away from the table with the jackpot.

III. Starlink’s Quantum Leap: Forging a New Satellite-Terrestrial Paradigm

The acquisition of EchoStar’s AWS-4 and H-block spectrum is a watershed moment for SpaceX. It catapults the company’s Starlink division from a promising but niche player in the D2C space into a position of formidable power, armed with the ideal assets to realize its global ambitions. This deal fundamentally alters the D2C value chain, supercharges its alliance with T-Mobile, and introduces complex new questions of vertical integration for antitrust regulators.

From Partner to Kingmaker: The Power of Dedicated MSS Spectrum

Until now, Starlink’s D2C service, offered in partnership with T-Mobile, has been a groundbreaking but technically constrained offering. It has operated by leasing a small slice of T-Mobile’s terrestrial PCS spectrum, a band not optimized for the physics of space-to-ground communication. This has limited the service to basic text messaging, with a roadmap for voice and data still in development.

The acquisition of dedicated, nationwide MSS spectrum changes everything. As previously noted, the AWS-4 band is purpose-built for satellite communications, offering superior performance and a clearer regulatory path. Owning this “golden band” allows SpaceX to transition from a D2C partner, reliant on a carrier’s terrestrial assets, to a D2C kingmaker that controls its own destiny. With exclusive rights to this spectrum, SpaceX can now engineer a fully optimized, next-generation satellite constellation designed to deliver on the full promise of D2C: reliable voice, high-quality data streaming, and ubiquitous IoT connectivity directly to standard smartphones. This elevates the D2C value proposition from a novelty or emergency feature into a core, marketable network attribute, fundamentally changing the competitive landscape.

The T-Mobile Alliance Supercharged: Forging a “Ubiquity Moat”

The most immediate beneficiary of SpaceX’s empowerment is its primary U.S. partner, T-Mobile. The combination of T-Mobile’s extensive terrestrial 5G network and Starlink’s enhanced D2C capabilities creates a hybrid network with a profound competitive advantage. T-Mobile will soon be able to market a service that offers virtually seamless connectivity, eliminating terrestrial dead zones for core voice and data services across the vast majority of the U.S. landmass.

This capability directly addresses a primary consumer pain point and a top purchase driver: the ability to make calls and use data anywhere. This “ubiquity” feature becomes a formidable competitive moat. It creates a stickier service that could significantly reduce customer churn, particularly among high-value subscribers in rural areas, outdoor enthusiasts, and enterprise clients in sectors like logistics, agriculture, and transportation. It provides a compelling reason for customers of rival carriers to switch to T-Mobile and a powerful reason for existing customers to stay. While the service will have inherent limitations, satellite signals struggle to penetrate buildings, confining the primary use case to outdoor environments, its value in eliminating outdoor dead zones gives T-Mobile an asymmetric advantage that rivals, with their still-nascent D2C partnerships, cannot immediately match.

Antitrust Headwinds: Scrutinizing the Vertical Integration of a New Power Broker

While the transfer of spectrum licenses from a non-competitor (EchoStar) to a new entrant (SpaceX) may not trigger traditional horizontal antitrust concerns, the deal’s approval is not guaranteed. It is highly unlikely that the FCC or DOJ will put significant conditions on this deal even though it raises a more complex and potentially more problematic issue: vertical integration and the market power of SpaceX.

The structure of this transaction creates a classic vertical integration scenario that will force antitrust authorities to consider novel questions in the telecommunications space. SpaceX is already the dominant player in the upstream market for satellite launch services, controlling a vast majority of the global commercial launch market. Many of its direct competitors in the satellite communications industry, including companies building rival D2C constellations, are dependent on SpaceX’s rockets to get their satellites into orbit. This reliance has already raised concerns about SpaceX potentially favoring its own Starlink constellation.

By acquiring scarce, premium MSS spectrum, SpaceX is now poised to become the dominant player in the downstream market for D2C services in the U.S. This combination of upstream and downstream market power will compel antitrust enforcers to examine whether SpaceX could leverage its launch monopoly to harm competition in the D2C market. This could manifest in several ways consistent with a classic “raising rivals’ costs” antitrust theory, such as using discriminatory pricing for launches, prioritizing its own satellites over those of competitors, or demanding exclusionary contract terms that limit a customer’s ability to use other launch providers. This shifts the regulatory focus from the FCC’s public interest standard on spectrum utilization to the DOJ’s stricter antitrust framework concerning market power, competitive foreclosure, and the potential for a dominant firm in one market to stifle competition in an adjacent one.

IV. The Terrestrial Counteroffensive: AT&T and Verizon’s Race for Parity

While the SpaceX-EchoStar deal reshapes the satellite-cellular frontier, the battle on the terrestrial front continues unabated. For Verizon, the imperative to secure additional mid-band spectrum is now more acute than ever, though its path is complicated by legal disputes. In response to the formidable T-Mobile/Starlink alliance, Verizon and AT&T have been forced into an unprecedented defensive partnership, betting their D2C future on a single satellite provider, AST SpaceMobile.

The Strategic Imperative for AWS-3 and the Shadow of a Lawsuit

Verizon’s network has long been defined by its quality and reliability, but it faces a relative deficit in critical mid-band spectrum compared to T-Mobile’s vast 2.5 GHz holdings. AT&T’s recent $23 billion acquisition of EchoStar’s 3.45 GHz and 600 MHz spectrum threatened to widen this gap, potentially leaving Verizon in third place in the 5G capacity race.

However, this straightforward strategic move is complicated by a significant legal entanglement. EchoStar is currently suing the FCC in the U.S. Court of Appeals for the Tenth Circuit to block the rules governing the upcoming re-auction of these very AWS-3 licenses. The lawsuit stems from a decade-old issue where Dish Network (now EchoStar) defaulted on winning bids from the original 2015 auction. EchoStar is now potentially liable for any shortfall if the re-auction fails to generate at least $3.3 billion. EchoStar argues that the FCC’s updated, more restrictive auction rules for small businesses will suppress bidding, making a shortfall more likely and unfairly exposing the company to billions in penalties.

This litigation creates a strategic dilemma that directly impacts the competitive balance. The lawsuit introduces significant uncertainty around the timing and final cost of the AWS-3 spectrum, which Congress has mandated must be auctioned by June 2026. Any delay in the auction directly harms Verizon’s ability to close its mid-band capacity gap with AT&T, which has already secured and can begin deploying its new spectrum. Every month the AWS-3 spectrum remains in legal limbo is a month that Verizon’s network risks falling further behind in critical urban markets, eroding the very foundation of its premium brand and value proposition.

The AST SpaceMobile Gambit: A Unified Front Against a Common Threat

Faced with the powerful and vertically integrated T-Mobile/Starlink alliance, Verizon and AT&T have been driven to adopt an unprecedented counter-strategy: a joint, non-exclusive reliance on satellite partner AST SpaceMobile. Both carriers have signed commercial agreements with AST SpaceMobile and are providing it with access to their licensed terrestrial spectrum—primarily in the 850 MHz band—to power its D2C service.

This move represents a fundamental shift in the competitive dynamics of the U.S. wireless market. AT&T and Verizon are historically fierce, zero-sum competitors that have rarely, if ever, collaborated on a core strategic technology platform. Their decision to both partner with AST SpaceMobile, rather than each seeking an exclusive satellite partner, is a clear signal of the profound disruptive threat they perceive from Starlink. This “co-opetition” is a defensive alliance born of necessity. By pooling their spectrum resources and committing their vast subscriber bases to a single satellite platform, they can help AST SpaceMobile achieve the scale, funding, and regulatory momentum necessary to build a viable competing constellation more quickly. This strategy effectively transforms the D2C battle from a three-way free-for-all into a two-sided war between distinct technology ecosystems: the T-Mobile/Starlink bloc versus the AT&T/Verizon/AST SpaceMobile bloc.

Comparative Analysis: Starlink D2C vs. AST SpaceMobile

The two emerging satellite-cellular ecosystems are built on fundamentally different strategic and technical models.

  • The Starlink Model: This is a deeply vertically integrated approach. SpaceX controls the rocket manufacturing, the launch services, the satellite constellation, and now, the dedicated MSS spectrum. This provides significant advantages in terms of cost control, deployment speed, and the ability to optimize the entire system—from satellite to spectrum to handset—for maximum performance. Its primary challenge is the immense capital required to build and maintain this integrated system.
  • The AST SpaceMobile Model: This is a partnership-based approach. AST SpaceMobile relies on its carrier partners (AT&T and Verizon in the U.S.) for access to terrestrial spectrum and their subscriber bases. Its key technological differentiator is its satellite design, which features exceptionally large phased-array antennas. These massive antennas are designed to be powerful enough to connect directly with standard, unmodified smartphones using conventional terrestrial spectrum bands from hundreds of miles in orbit. This model is more capital-efficient for the satellite operator but introduces complexities in coordinating with multiple carrier partners and managing potential interference with terrestrial networks.

The race is now on to see which model can achieve scale and deliver a compelling service to consumers first. Starlink has the advantage of an existing LEO constellation and now, superior spectrum. AST SpaceMobile has the backing of two of the world’s largest carriers and a novel satellite architecture. The outcome of this technological and strategic competition will define the future of ubiquitous connectivity. Alternatively, AT&T and/or Verizon could abandon their AST SpaceMobile partnership and throw in their lot with Starlink. This might be a technically superior solution, but puts them at the mercy of Elon Musk.

V. Navigating the Regulatory Gauntlet

The final approval of the EchoStar-SpaceX spectrum transfer is not a foregone conclusion and must navigate a complex regulatory environment. However, the deal has been skillfully structured to address the primary concerns of the FCC, while the most likely challenge will come from state-level actors seeking consumer protection concessions.

The FCC’s End Game: Why Approval Is the Path of Least Resistance

The FCC is highly likely to approve the spectrum license transfer with minimal friction. The entire transaction is framed as the solution to the very problem that prompted the agency’s investigation in the first place: EchoStar’s perceived “spectrum squatting”. For years, and with increasing public pressure from figures like Chairman Carr, the FCC’s primary objective has been to see EchoStar’s underutilized spectrum put to more intensive use for the benefit of American consumers.

This deal achieves that objective in the most direct way possible. It transfers the licenses from EchoStar, a company that proved unable to deploy them effectively, to SpaceX, a well-capitalized and highly motivated entity that has publicly committed to building a next-generation satellite network on these exact frequencies. For the FCC, approving the deal is the path of least resistance; it allows the commission to declare victory in its campaign against spectrum warehousing. The preservation of Boost Mobile as a “hybrid MNO” with access to this new D2C service provides the necessary political and regulatory justification to bless the transaction.

DOJ and State AGs: The Inevitable Price of Consolidation

While the FCC’s path seems clear, the view from antitrust enforcers is more complex. The Department of Justice is unlikely to block the transaction outright. The “failing firm” doctrine, which was a key rationale in the approval of the T-Mobile/UScellular merger, applies directly to the collapse of EchoStar’s wireless ambitions. With EchoStar having effectively exited the market as a facilities-based competitor, the DOJ lacks a strong basis to argue that this specific spectrum transfer further harms terrestrial competition. The more salient antitrust questions, as noted, relate to vertical integration, which may result in behavioral remedies or oversight rather than a full blockade.

The most probable challenge will emerge from a multi-state coalition of Attorneys General, particularly from Democratic-led states. This is the same playbook used during the T-Mobile/Sprint merger, where state AGs filed suit to block the deal on consumer protection grounds, arguing it would reduce competition and raise prices. A similar legal challenge is almost inevitable. The AGs will argue that allowing the last major independent block of mid-band spectrum to be absorbed into an ecosystem controlled by one of the top three carriers’ partners permanently cements a three-player oligopoly to the detriment of consumers.

However, the most likely outcome of such a challenge is not a complete blockade but a negotiated settlement. Precedent suggests that the carriers will be forced to the negotiating table to offer tangible consumer concessions in exchange for the AGs dropping their lawsuit. These concessions could include multi-year price locks for low-income plans, specific buildout commitments for the D2C service in underserved rural areas within their states, and robust protections for independent Mobile Virtual Network Operators (MVNOs) to ensure a competitive wholesale market. The deal will proceed, but not without a price.

VI. Conclusion: Winners, Losers, and the Future Trajectory of U.S. Connectivity

The great spectrum reshuffle, culminating in the EchoStar-SpaceX transaction, has irrevocably altered the competitive landscape of the U.S. telecommunications and satellite industries. It has created clear winners and losers, solidified a new market structure, and set the strategic trajectories for every major player for the remainder of the decade.

Scoring the Reshuffle:

The definitive terms of the recent deals allow for a clear assessment of the strategic outcomes for all involved parties.

  • Biggest Winners: The clearest victors are Charlie Ergen and SpaceX. Ergen successfully monetized decades of spectrum speculation for a massive profit, deftly navigating operational failure to achieve a stunning financial success. SpaceX acquires the “golden band” of MSS spectrum, the single most critical and previously unobtainable asset needed to realize its global D2C ambitions and establish a commanding technological lead.
  • Primary Beneficiary: T-Mobile emerges as the primary strategic beneficiary among the mobile network operators. Its exclusive partnership with a newly empowered Starlink provides it with a powerful and asymmetric “ubiquity moat”—a unique value proposition of near-total coverage that will be a potent tool for customer acquisition and retention in the years to come.
  • Forced to React: Verizon and AT&T are now firmly on the defensive in the new D2C battle. While their terrestrial network positions are solidified—particularly AT&T’s after its own spectrum purchase from EchoStar—they have been forced into a reactive alliance with AST SpaceMobile to counter the first-mover advantage of the T-Mobile/Starlink bloc. Their success now depends heavily on the execution of a third-party partner in a race where they are starting from behind or they might join the Starlink camp under the premise of “If you can’t beat them, join them.”
  • Biggest Losers: The most significant casualty is the concept of a fourth facilities-based U.S. wireless carrier. The collapse of EchoStar’s effort, despite government mandates and access to spectrum, proves that the economic and competitive barriers to entry are now insurmountably high. EchoStar, the company, also fits this category. While financially solvent, its grand ambitions are dead. It survives as a shell of its former aspirations, relegated to the role of a hybrid MVNO presiding over a satellite TV business in terminal decline.

The Evolving Battlefield: Key Milestones and Strategic Outlook for 2026-2028

The U.S. wireless market now revolves around three titans engaged in a two-front war. The coming years will be defined by their execution on both the terrestrial and satellite fronts. The key milestones that will determine the future trajectory of the industry include:

  • The timeline and outcome of the regulatory review for the SpaceX/EchoStar transaction, including any potential concessions demanded by State Attorneys General.
  • The resolution of EchoStar’s lawsuit against the FCC and the subsequent timing and results of the AWS-3 spectrum re-auction, which will be critical for Verizon’s 5G capacity strategy.
  • The initial commercial launch and real-world performance of Starlink’s enhanced D2C service operating on the AWS-4 spectrum, which will be the first major test of the technology at scale.
  • The successful launch and operational performance of AST SpaceMobile’s first block of commercial BlueBird satellites, which will determine the viability of the AT&T/Verizon counter-strategy.
  • The marketing, pricing, and consumer adoption rates of the competing D2C offerings, which will ultimately reveal whether ubiquitous connectivity is a niche feature or a mass-market demand driver that can reshape carrier loyalty.

The era of four-player competition is definitively over. The war for the future of American connectivity—a war fought simultaneously on the ground and from orbit—has just begun.

Posted on by Roger Entner

Qualcomm is the quintessential American tech company steeped it engineering excellence. Its genesis was the development of a new wireless standard called CDMA. Initially, it was written off as a failure, often ridiculed by its larger global rivals. It created a niche by getting American mobile providers like Verizon, Sprint and South Korean mobile providers like SK Telecom to adopt its technology. Qualcomm found redemption as the mobile providers often had the best networks in their respective countries, better than the globally dominant GSM standard. It found salvation when a variant of its CDMA standard was adopted as the global 3G standard called Wideband CDMA or to those who still harbored old animosities UMTS. It then became the global leader in 4G by holding most of the patents on the OFDM technology that underlies LTE.

By the late 2010s, Qualcomm that engineered itself through superior technology to unprecedented success was faced with five major problems that no engineering solution could easily fix.

  1. Despite being the premier mobile technology company growth had slowed down as upstarts like MediaTek was gaining market share, first in the entry level, highly price sensitive segment but was closing the performance gap between the solutions of the two companies. Qualcomm still dominated the flagship segment, but MediaTek dominated the entry level.
  2. Broadcom launched a hostile takeover to buy Qualcomm as investors were frustrated with low stock returns. Broadcom was only thwarted through the intervention of the US government.
  3. Qualcomm’s largest customer Apple with the support of the Department of Justice was using the courts as a price negotiation tool.
  4. The Android smartphone market was increasingly concentrating with Samsung and Chinese providers driving other manufacturers out of the market. Former mobile phone giants like LG and HTC exited the market.
  5. The relationship between the United States and China was becoming increasingly hostile. The US government instituted unprecedented sanctions against Huawei and imposed trade restrictions on semi-conductors.

Qualcomm CEOs are engineers at heart, Irwin Jacobs, the legendary founder; his son Paul, and Steve Mollenkopf. While Cristiano Amon is also an engineer has cut his chops as President of Qualcomm by spearheading the diversification of Qualcomm into more business segments and therefore to enable Qualcomm to participate in more growth sectors.

Under Cristiano Amon the company is continuing to focus on mobile and IoT but is expanding into computing and automotive. By doing so Qualcomm has expanded its addressable market from $15 billion to over $700 billion. The impact has been almost immediate. Qualcomm has now a $30 billion design win pipeline until 2030.

How did he do this? Qualcomm purchased several companies to strengthen its position in the respective sectors. It bought Cellwize and Augmented Pixels to improve its positioning in mobile, Clair AIR to strengthen its capabilities in the AR/VR area. But most importantly, Qualcomm bought Nuvia, a company focusing on ARM-based computing solutions and Arriver, a company with particular strength in advanced driver assistance software and hardware. And just a last week, Qualcomm acquired Autotalks, a fabless chipmaker making silicon and systems-on-chip for automotive safety.

The Nuvia acquisition is laying the ground work to strengthen Qualcomm’s core base of computing, just like the acquisition of P.A. Semi in 2008 did for Apple. P.A. Semi focused on low power processors and brought to Apple the expertise to build first the A-series chips that have powered iPhones since 2010 and now the M-series chips that were launched in 2020. If Apple’s success is any indication then ARM-based processors are going to be the processors of the foreseeable future. The power envelope of compute power, electric power consumption and heat generation are not on the side of x86 processors, but ARM-based processors. It could also help Qualcomm to close the mobile processor speed gap between itself and Apple A-series processors and increase the gap between Qualcomm and MediaTek processors. Faster, more powerful processors will also help in Qualcomm’s greatest growth market: automobiles.

Where Qualcomm is most likely to replicate the strong position it has in mobility is in electric vehicles. Qualcomm has created a comprehensive solution for automobile manufacturers called Snapdragon Digital Chassis. It combines safety and connectivity with entertainment, customization and upgradability. It takes the basic lessons of a smartphone and takes it to the automobile. The parallels and similarities as the car becomes essentially a mobile server are striking. Qualcomm is coming into this market at the right time when other’s have laid a foundation for the demand, but Qualcomm has the more comprehensive and elegant solution. Qualcomm has also the opportunity to provide a solution that rivals that of Apple. Apple’s Carplay service is viewed by many car manufacturers as a bear-hug take-over of a large part of the user interface between the drivers and passengers of the car most of the navigation and entertainment interface. Automobile manufacturers are especially sensitive due to the long-rumored Apple project to build their own electric car and Google’s Waymo autonomous car company. The car manufacturers know Apple and Google do not come in peace and do mean harm to them. Car manufacturers have to own the user interface between the vehicle and the customer, but know their solution has to be on-par if not better than that of Apple and Google. Working with Qualcomm gives them a chance to do that and so much more. In addition, while there exists significant brand loyalty for traditional car buyers with more than 50% of owners of one car brand to own a car from the same car brand, this loyalty does not exist when it comes to the switch to an electric vehicle. This levels the playing field and is an incredible threat to incumbents and opportunity for new market entrants. Tesla is the embodiment of this new generation of automobile manufacturers. While Tesla had to pioneer a lot of the systems themselves, the next generation electric vehicles can rely on integrated solutions from a company like Qualcomm. Car manufacturers like General Motors, Cadillac, Stellantis, and Mercedes-Benz as well as BMW, Hyundai, Nio and Volvo are in varying degrees of partnership with Qualcomm. Such an array of car manufacturers and a solution that offers breadth and depth gives Qualcomm critical mass to win the automotive market. Who would have thought three years ago?

Posted on by Roger Entner

In recent years, the FTC raised concerns that Qualcomm’s patent portfolio and unbiased licensing scheme would prevent other companies from manufacturing and selling 5G chipsets, leading to an anti-trust lawsuit that concluded in November 2019. However, the prediction has not borne out. Currently, there are two companies, Qualcomm and MediaTek, that sell 5G chipsets to the device ecosphere at large, two captive suppliers who make their own 5G chipsets for internal consumption, and one company that is creating its own new 5G chipset also for internal consumption.

The mobile chipset business has a series of players with different objectives. Companies like Qualcomm and MediaTek provide mobile chipsets to device manufacturers and serve the vital function of ecosphere enablers. Without them, the plethora of devices and choices consumers enjoy when it comes to smartphones would not be possible. Another set of companies are making mobile chipsets only for themselves to create a competitive advantage in the marketplace. Apple and Samsung fall into this camp. Huawei is potentially a hybrid case as it was previously only providing its own handset group with chipsets, but now also provides them to a Chinese state-led consortium that purchased the Honor handset line.

 CustomerModemIntegrated SoCStand-alone Application ProcessorRF Frontend
QualcommEcosphereYesYesNoYes
MediaTekEcosphereNoYesNoNo
HuaweiDivested divisionsYesYesDiscontinuedNo
SamsungCaptiveYesYesNoNo
AppleCaptiveFutureFutureYesNo
Intel
(sold to Apple)		EcosphereYesNoAbortedNo

Currently, Qualcomm provides high-quality Systems on Chip (SOC) that are integrating multiple components, ranging from baseband, AI, graphics, camera, to CPU into one chip to anyone interested in them. Qualcomm was the first company to offer 5G chipsets with the first devices hitting the market at the end of 2019. MediaTek is offering a similar, but less advanced and less integrated product line to device manufacturers looking for low-level to medium-level chipsets. By the middle of 2020, MediaTek’s chipsets were powering a broad portfolio of handsets.

Intel, another ecosphere provider, sold its mobile chip business to Apple in December 2019, nine years after it entered the mobile chip market by buying a division of Infineon. Intel’s motivation to buy Infineon was that Infineon was the sole provider of modems to Apple. Reportedly during the negotiations between Intel and Infineon, then-Intel CEO Otellini sought reassurances from then-Apple CEO Steve Jobs that Apple would continue to use Infineon products after the Intel acquisition as Otellini recognized the importance of Apple as a customer for its chipsets. During the nine years after the Infineon acquisition, Intel’s mobile chipset division’s fate was intricately linked to Apple as Intel struggled to find other customers in the mobile device manufacturer ecosphere. In a nutshell, Intel was unable to compete with Qualcomm on quality like RF performance and SoC integration and was unwilling to compete with MediaTek as it had a more integrated solution and Intel did not. Intel ultimately threw in the towel on the heels of Apple and Qualcomm settling their lawsuit and agreeing to a six-plus two-year licensing and multiyear chipset supply agreement.

Huawei through its HiSilicon subsidiary has developed and used its own 5G chipsets and has integrated them into its own devices. While the Huawei chipsets are not as integrated and small as Qualcomm’s, Huawei’s engineers have found ways to integrate the chipsets into its devices. It is using Qualcomm, Skyworks and Qorvo, all from the US, for its RF front-end. Huawei’s role in the mobile world got a lot more interesting as it has sold its Honor-brand device division to a Chinese state-led consortium of more than three dozen companies as Huawei experienced a lot of pressure on its devices sales due to American sanctions. Reportedly, Huawei is also considering selling its Mate and P-line device groups in the hope that American sanctions will not follow to the new owners of the device businesses. Up until now, Huawei is not selling its HiSilicon chipsets to other companies, other than the group of Huawei dealers that acquired the Honor-brand device division, as a competitive weapon in order to keep their best technology capitive. In 2019, during the trade tensions between the US and China over Huawei, the company offered to license its 5G intellectual property to American companies to alleviate any spying concerns, but no deal has emerged until to date. If Huawei is divesting its entire device portfolio Huawei might either also divest its HiSilicon division with it or become an ecosphere provider for other handset manufacturers. The direction of Huawei’s HiSilicon business will be quite telling of the size of the Chinese walls between Huawei and its divested handset businesses as well as other handset vendors.

Samsung has been producing its own Exynos modems and mobile processors, and has also purchased mobile chipsets from Qualcomm. Samsung’s new 5G devices, including its S20 5G flagship smartphone, is shipping either with the Exynos or Qualcomm Snapdragon chipset. Samsung sells the Qualcomm variant in the US, China, and most recently South Korea, and its Exynos variant in the rest of the world. Benchmarking has shown that the Qualcomm chipset version regularly outperform the Exynos one and that Samsung uses the Qualcomm variant in the most competitive markets to close the gap against Apple’s iPhone.

In 2008, Apple with its computer heritage bought P.A. Semi, a processor development company specializing in highly power-efficient designs, to build its own ARM-based processors for iPhones, iPads, and similar devices. Apple’s ARM processors are now the fastest CPUs in the market and will start powering Apple Mac computers starting in 2021. Apple sourced its baseband chipset first from Infineon, then post-acquisition from Intel, then a few years later from Qualcomm, then dual-sourced from Intel and Qualcomm, and most recently in 2019, signed an agreement to return to Qualcomm. In 2019, Apple also bought Intel’s baseband chipset business and has started hiring more wireless engineers in San Diego, Qualcomm’s home market. Considering Apple’s track record it is quite logical that Apple is going to try to replicate its successful ARM processor endeavor in modems, and internally source its 5G mobile chipsets when the Qualcomm agreement expires. The Qualcomm agreement gives Apple breathing room to pour its resources into an area that is a key differentiator between mobile devices.

These successful 5G chipset endeavors demonstrate that Qualcomm’s patent portfolio and licensing policy do not present a significant barrier to innovation. Qualcomm’s licensing rates have not changed since it first started licensing CDMA in the 1990s, while its portfolio has grown substantially, facilitating continued innovation that has made the United States a leader in international telecommunications on a fair, reasonable, and non-discriminatory basis. As silicon merchants to the industry, Qualcomm and Mediatek’s participation in chipset development creates choice and opportunity for many mobile device manufacturers to have a chipset that meets their needs and budgets exponentially increases the range of consumer choices without infringing on the ability of other companies to enter the market.

Posted on by Roger Entner

As China has become a major global economy and grows more assertive on the global stage, the country has discovered the power of anti-trust legislation. While created on three common pillars of fighting anti-competitive agreements between companies, the abuse of a dominant position, and mergers that may eliminate or restrict competition, the implementation is increasingly different. There have been hundreds of cases where Chinese authorities have looked at mergers between Chinese companies, and not one has been objectionable to the authorities. But if it doesn’t matter that two separate companies are owned by the state or merged, how can a merger between state-owned businesses be anti-competitive?

In a state capitalist system, as we have now, Communist Party groups are part of every company, including private domestic or international joint-ventures and all foreign investment is in the shape of a joint-venture with a Chinese partner with three or more employees. While they have long-established formal power in state owned enterprises (SOE), for joint ventures there is increasing pressure to allow party groups to approve all critical matters before they are presented to the board based on the 2017 Communist Party Directive entitled “Notice about firmly promoting writing SOE party building work into company articles of association.” Following this logic, reviews of intra-Chinese mergers have always been approved.

Mergers in the last decade

As you can see from the chart above, there are no outright merger rejections and only a small number of approvals with conditions. Interestingly, the only mergers that have come under scrutiny are mergers without Chinese involvement. Due to the extraterritorial nature of Chinese anti-trust law, even mergers of companies outside China fall under its purview when it involves companies with a substantial amount of business in China. For example, in 2019, the five cases that were approved with conditions were KLA Tencor (US)/ Orbotech (Israel), Cargotec (Finland)/ TTS (Norway), II-VI incorporated (US)/Finisar (US), Zhejiang Huayuan Biotechnology (PR China)/Royal DSM (Dutch), and Nevelis (US)/Aleris (US). In addition, there are cases like Qualcomm (US) / NXP (Dutch), where instead of denying the application, Chinese anti-trust authorities just ran out the time. After two years of waiting for the acquisition of NXP by Qualcomm to be permitted, the companies reached the end of the contractual merger period and were forced to give up. This de facto denial was never recorded as a denial, as the Chinese anti-trust authorities simply did not rule. Due to the small size of China’s anti-trust authority, the country has plausible deniability when it delays ruling on a merger. At face value, China’s perfect record of only approving mergers remains intact, when in reality the merger was forcibly abandoned.

What’s really at stake

Cases such as those mentioned above create the appearance that Chinese anti-trust concerns are not directed at protecting Chinese consumers but protecting Chinese industrial policy. The approval with conditions of the Marubeni (Japan) acquisition of Gavilon (US) and Glencore (Swiss) of Xstrata (Swiss/UK) demonstrates that China’s industrial policy leads anti-trust merger enforcement. In both cases, China was concerned about the supply of vital commodities, copper and grain respectively, and the merger was approved only after significant divestitures that alleviated these concerns.

With this in mind, the acquisition of ARM Technologies (UK) from Softbank (Japan) by Nvidia from the US will be another interesting case. Most casual observers would conclude that Chinese anti-trust authorities would not be involved. Au contraire, mon ami! Almost all smartphone central processors are using ARM instruction sets, and Chinese companies have built their AI and neural processing technology on them. Huawei even went a step further and built its Ascend AI and Kunpeng general purpose processor programs entirely on ARM. The increasing reliance is due both to technical and to political reasons.

President Trump’s moves to use American intellectual property in trade battles with China, as well as restricting their use in military and dual-use applications, has complicated the lives of Chinese high-tech companies and it is likely to continue during President Biden’s administration. As a reaction, China has accelerated its Made in China 2025 project focused on reducing its dependency on foreign technology and products and shifting to non-American suppliers. If the Nvidia acquisition of ARM goes through, another key technology will be more closely under the control of US authorities, giving them another potential tool to assert pressure on China. It would also give Nvidia a significant boost in the AI competitive race that China considers one of its highest priorities. Nividia is a leader in network-based AI and ARM a leader in device-based, also known as edge AI. Combining the two companies makes them a much more formidable competitor, allowing to cross pollinate network AI with edge AI technology and vice-versa. Both companies have substantial business in China and hence fall under Chinese anti-trust laws and are subject to review.

Considering China’s track record, it is almost inevitably going to either block or just refuse to approve the Nvidia/ARM transaction to protect its domestic industry from further US sanctions and restrictions and to prevent a stronger competitor in the AI marketplace. It is more likely that China will simply run out the clock on the merger, while a more aggressive and higher profile move would be an outright denial of the merger. This would send a much stronger signal to the United States than passive aggressive non-approval and would be a harbinger of a more adversarial phase in the relationship between the two countries.

Posted on by Roger Entner

When Nvidia announced that it was in the process of buying Arm from Softbank, many analysts and industry observers were exuberant about how it would transform the semiconductor industry by combining the leading data center Artificial Intelligence (AI) CPU company with the leading device AI processor architecture company. While some see the potential advantages that Nvidia would gain by owning ARM, it is also important to look at the risks that the merger poses for the ecosphere at large and the course of innovation.

An understanding of the particular business model and its interplay highlights the importance of the proposed merger. Nvidia became the industry leader in data center AI almost by accident. Nvidia became the largest graphics provider by combining strong hardware with frequently updated software drivers. Unlike its competitors, Nvidia’s drivers constantly improved not only the newest graphics cards but also past generation graphics cards with new drivers that made the graphics cards faster. This extended the useful life of graphics cards but, more importantly, it also created a superior value proposition and, therefore, customer loyalty. The software also added flexibility as Nvidia realized that the same application that makes graphics processing on PCs efficient and powerful – parallel processing – is also suitable for other heavy computing workloads like bitcoin mining and AI tasks. This opened up a large new market as its competitors could not follow due to the lack of suitable software capabilities. This made Nvidia the market leader in both PC graphics cards and data center AI computation with the same underlying hardware and software. Nvidia further expanded its lead by adding an parallel computing platform and application programming interface (API) to its graphics cards that has laid the foundation for Nvidia’s strong performance and leading market share in AI.

ARM, on the other hand, does not sell hardware or software. Rather, it licenses its ARM intellectual property to chip manufacturers, who then build processors based on the designs. ARM is so successful that virtually all mobile devices use ARM-based CPUs. Apple, which has used ARM-based processors in the iPhone since inception is now also switching their computer processors from Intel to ARM-based internally built CPUs. The ARM processor designs are now so capable and focused on low power usage that they have become a credible threat to Intel, AMD, and Via Technology’s x86-based CPUs. Apple’s move to eliminate x86 architecture from their SKUs is a watershed moment, in that solves a platform development issue by allowing developers to natively design data center apps on their Macs. Consequently, it is only a matter of time before ARM processor designs show up in data centers.

This inevitability highlights one of the major differences between ARM and Nvidia’s business model. ARM makes money by creating processor designs and selling them to as many companies that want to build processors as possible. Nvidia’s business model, on the other hand, is to create its own processor designs, turn them into hardware, and then sell an integrated solution to its customers. It is hard to overstate how diametrically different the business models are and hard to imagine how one could reconcile these two business models in the same company.

Currently, device AI and data center AI are innovating and competing around what kind of tasks are computed and whether the work is done on the device or at the data center or both. This type of innovative competition is the prerequisite for positive long-term outcomes as the marketplace decides what is the best distribution of effort and which technology should win out. With this competition in full swing, it is hard to see how a company CEO can reconcile this battle of the business models within a company. Even more so, the idea that one division of the New Nvidia, ARM, could sell to Nvidia’s competitors, for example, in the datacenter or automotive industry and make them more competitive is just not credible, especially for such a vigorous competitor as Nvidia. It would also not be palatable to shareholders for long. The concept of neutrality that is core to ARM’s business would go straight out of the window. Nvidia wouldn’t even have to be overt about it. The company could tip the scales of innovation towards the core data center AI business by simply underinvesting in the ARM business, or in industries it chooses to deprioritize in favor of the datacenter. It would also be extremely difficult to prove what would be underinvesting when Nvidia simply maintained current R&D spend rather than increasing it, as another owner might do as they see the AI business as a significant growth opportunity rather than a threat as Nvidia might see it.

It is hard to overestimate the importance of ARM to mobile devices and increasingly to general purpose computing – with more than 130 billion processors made as of the end of 2019. If ARM is somehow impeded from freely innovating as it has, the pace of global innovation could very well slow down. The insidious thing about such an innovative slow down would be that it would be hard to quantify and impossible to rectify.

The proposed acquisition of ARM by Nvidia also comes at a time of heightened anti-trust activity. Attorney Generals of several states have accused Facebook of predatory conduct. New York Attorney General Letitia James said that Facebook used its market position “to crush smaller rivals and snuff out competition, all at the expense of everyday users.” The type of anti-competitive conduct that was cited as basis for the anti-trust lawsuit against Facebook was also that of predatory acquisitions to lessen the threat of competitive pressure by innovative companies that might become a threat to the core business of Facebook.

The parallels are eerie and plain to see. The acquisition of ARM by Nvidia is all too similar to Facebook’s acquisitions of Instagram and WhatsApp in that both allow the purchasing entity to hedge their growth strategy regardless of customer preferences while potentially stifling innovation. And while Facebook was in the driver’s seat, it could take advantage of customer preferences. Whereas in some countries and customer segments the core Facebook brand is seen as uncool and old, Instagram is seen as novel and different than Facebook. From Facebook’s perspective, the strategy keeps the customer in-house.

The new focus by both States and the federal government, Republicans and Democrats alike, on potentially innovation-inhibiting acquisitions, highlighted by their lawsuits looking at past acquisitions as in Facebook’s and Google’s case, make it inevitable that new mergers will receive the same scrutiny. It is likely that regulators will come to the conclusion that the proposed acquisition of ARM by Nvidia looks and feels like an act that is meant to take control of the engine that fuels the most credible competitors to Nvidia’s core business just as it and its customers expands into the AI segment and are becoming likely threats to Nvidia. In a different time, regardless of administration, this merger would have been waved through, but it would be surprising if that would be the case in 2021 or 2022.

Posted on by Roger Entner

When Nvidia announced that it was in the process of buying Arm from Softbank, many analysts and industry observers were exuberant about how it would transform the semiconductor industry by combining the leading data center Artificial Intelligence (AI) CPU company with the leading device AI processor architecture company. While some see the potential advantages that Nvidia would gain by owning ARM, it is also important to look at the risks that the merger poses for the ecosphere at large and the course of innovation.

An understanding of the particular business model and its interplay highlights the importance of the proposed merger. Nvidia became the industry leader in data center AI almost by accident. Nvidia became the largest graphics provider by combining strong hardware with frequently updated software drivers. Unlike its competitors, Nvidia’s drivers constantly improved not only the newest graphics cards but also past generation graphics cards with new drivers that made the graphics cards faster. This extended the useful life of graphics cards but, more importantly, it also created a superior value proposition and, therefore, customer loyalty. The software also added flexibility as Nvidia realized that the same application that makes graphics processing on PCs efficient and powerful – parallel processing – is also suitable for other heavy computing workloads like bitcoin mining and AI tasks. This opened up a large new market as its competitors could not follow due to the lack of suitable software capabilities. This made Nvidia the market leader in both PC graphics cards and data center AI computation with the same underlying hardware and software. Nvidia further expanded its lead by adding an parallel computing platform and application programming interface (API) to its graphics cards that has laid the foundation for Nvidia’s strong performance and leading market share in AI.

ARM, on the other hand, does not sell hardware or software. Rather, it licenses its ARM intellectual property to chip manufacturers, who then build processors based on the designs. ARM is so successful that virtually all mobile devices use ARM-based CPUs. Apple, which has used ARM-based processors in the iPhone since inception is now also switching their computer processors from Intel to ARM-based internally built CPUs. The ARM processor designs are now so capable and focused on low power usage that they have become a credible threat to Intel, AMD, and Via Technology’s x86-based CPUs. Apple’s move to eliminate x86 architecture from their SKUs is a watershed moment, in that solves a platform development issue by allowing developers to natively design data center apps on their Macs. Consequently, it is only a matter of time before ARM processor designs show up in data centers.

This inevitability highlights one of the major differences between ARM and Nvidia’s business model. ARM makes money by creating processor designs and selling them to as many companies that want to build processors as possible. Nvidia’s business model, on the other hand, is to create its own processor designs, turn them into hardware, and then sell an integrated solution to its customers. It is hard to overstate how diametrically different the business models are and hard to imagine how one could reconcile these two business models in the same company.

Currently, device AI and data center AI are innovating and competing around what kind of tasks are computed and whether the work is done on the device or at the data center or both. This type of innovative competition is the prerequisite for positive long-term outcomes as the marketplace decides what is the best distribution of effort and which technology should win out. With this competition in full swing, it is hard to see how a company CEO can reconcile this battle of the business models within a company. Even more so, the idea that one division of the New Nvidia, ARM, could sell to Nvidia’s competitors, for example, in the datacenter or automotive industry and make them more competitive is just not credible, especially for such a vigorous competitor as Nvidia. It would also not be palatable to shareholders for long. The concept of neutrality that is core to ARM’s business would go straight out of the window. Nvidia wouldn’t even have to be overt about it. The company could tip the scales of innovation towards the core data center AI business by simply underinvesting in the ARM business, or in industries it chooses to deprioritize in favor of the datacenter. It would also be extremely difficult to prove what would be underinvesting when Nvidia simply maintained current R&D spend rather than increasing it, as another owner might do as they see the AI business as a significant growth opportunity rather than a threat as Nvidia might see it.

It is hard to overestimate the importance of ARM to mobile devices and increasingly to general purpose computing – with more than 130 billion processors made as of the end of 2019. If ARM is somehow impeded from freely innovating as it has, the pace of global innovation could very well slow down. The insidious thing about such an innovative slow down would be that it would be hard to quantify and impossible to rectify.

The proposed acquisition of ARM by Nvidia also comes at a time of heightened anti-trust activity. Attorney Generals of several states have accused Facebook of predatory conduct. New York Attorney General Letitia James said that Facebook used its market position “to crush smaller rivals and snuff out competition, all at the expense of everyday users.” The type of anti-competitive conduct that was cited as basis for the anti-trust lawsuit against Facebook was also that of predatory acquisitions to lessen the threat of competitive pressure by innovative companies that might become a threat to the core business of Facebook.

The parallels are eerie and plain to see. The acquisition of ARM by Nvidia is all too similar to Facebook’s acquisitions of Instagram and WhatsApp in that both allow the purchasing entity to hedge their growth strategy regardless of customer preferences while potentially stifling innovation. And while Facebook was in the driver’s seat, it could take advantage of customer preferences. Whereas in some countries and customer segments the core Facebook brand is seen as uncool and old, Instagram is seen as novel and different than Facebook. From Facebook’s perspective, the strategy keeps the customer in-house.

The new focus by both States and the federal government, Republicans and Democrats alike, on potentially innovation-inhibiting acquisitions, highlighted by their lawsuits looking at past acquisitions as in Facebook’s and Google’s case, make it inevitable that new mergers will receive the same scrutiny. It is likely that regulators will come to the conclusion that the proposed acquisition of ARM by Nvidia looks and feels like an act that is meant to take control of the engine that fuels the most credible competitors to Nvidia’s core business just as it and its customers expands into the AI segment and are becoming likely threats to Nvidia. In a different time, regardless of administration, this merger would have been waved through, but it would be surprising if that would be the case in 2021 or 2022.

Posted on by Roger Entner

The Department of Justice announced on July 26, 2019, that it approved the T-Mobile/Sprint merger under a series of conditions involving divestitures to Dish Network. What do all the conditions of the transaction mean in plain English?
In short, Charlie Ergen’s Dish has been given a new lease on life for several years, while the impact across the industry in terms of pricing, competition and rollout of 5G is less clear—other than we can expect Verizon and AT&T to focus on implementing their respective 5G strategies while Sprint and T-Mobile integrate their businesses.

DISH gets Sprint’s prepaid businesses
Dish Network is becoming a wireless service provider with 9.3 million customers. Until it builds out its own network, Dish will be the second largest MVNO in the United States. The brands that Dish is buying are in distress.
According to the T-Mobile/Sprint/Dish announcement, Sprint’s prepaid business has almost 7,500 distribution points from Walmart and independent retailers. As a comparison, T-Mobile’s MetroPCS has over 10,500 distribution points. More importantly Sprint’s prepaid business lost over the last year about 3,000 distribution points from Target, Best Buy and Meijers due to poor performance.
This represents a decrease of about 30% of Sprint prepaid sales distribution network and probably at least of 25% of Sprint prepaid’s gross adds. This would indicate that Sprint prepaid’s gross adds will decrease from roughly 4 million over the last year to 3 million going forward, translating into a subscriber loss of the same number. The $1.4 billion that Dish pays for Sprint’s prepaid business roughly represents the expected future cash flows of somewhere between $1.5 billion to $2 billion from the 9.3 million customers over their expected remaining life time. Building a retail store costs between $1 million and $2 million. If Dish wants to have a similar physical presence as the other competitors, it would need around 2,000 corporate retail stores for $2 billion to $3 billion cost.
What is interesting is that 9.3 million prepaid customers are being transferred from Sprint to Dish but Sprint only recognizes 8.1 million as prepaid in its financial statement. The solution to this puzzle is that Sprint counts any prepaid customer that pays for their phone in installments, like the BoostUp program, as postpaid customer, not prepaid.

DISH gets Master Services Agreement for network access
The key in the Master Service Agreement (MSA) is the phased approach. Logically, Dish would add all new customers onto the T-Mobile network and subsequently to its own 5G network. With Sprint’s 4.37% prepaid churn rate, mathematically all of its customers quit the carrier within 22 months. The big question here is what route Dish will take. Dish intends to build a stand-alone 5G network based on the 3GPP Release 16 standard.
The problem is that 5G Release 16 has not been finalized yet—delayed until March 2020—as it has been caught in the crossfire of the U.S.-China dispute over 5G and Huawei. It takes roughly six to 12 months after the standard has been finalized for equipment to become available. Dish’s Ergen said he would like to have the first city up by the end of 2020. This is an extremely ambitious time line and assumes no delays in finalizing Release 16 and immediate availability of equipment and manpower to install the network, while design and deployment companies are at full capacity. Until then, Dish is dependent on T-Mobile as its host network provider.
Transition services agreement to support prepaid customers
This means that Sprint’s CDMA network will be operational for up to three years and that the New T-Mobile will provide core networking services if needed during that time. Considering that the expected average life of Sprint’s prepaid customer base is 22 months, a 50% additional life will provide services for 90% of the customers. After the three years, the customers have to be off the Sprint network, either on Dish’s 5G Network or T-Mobile’s network.

DISH gets Sprint’s 800 MHz spectrum licenses
Low-band spectrum is needed to provide coverage outdoors and reliable service inside buildings since the signals travel far and penetrate buildings well. Sprint has a nationwide 800 MHz license with 14 MHz of bandwidth. Fourteen MHz is sufficient spectrum to provide voice communications in people’s homes and businesses, but not enough for high-speed data. Even using carrier aggregation with higher bands and therefore more bandwidth will be challenging due to the inferior propagation characteristics of the higher band spectrum. The two-year lease-back is there to continue to allow Sprint to maintain its current coverage without impacting Dish’s actual deployment plans.

Dish gets option to take over decommissioned cell sites and retail locations
One of the biggest challenges for Dish is to quickly build a wireless network and have a large retail distribution network. After T-Mobile has integrated the Sprint sites into its network, Dish will be able to take over decommissioned cell sites and retail locations, which is a blessing and a curse at the same time. The cell sites and retail locations that the New T-Mobile will decommission and look to divest after the merger closes are going to be the most expensive, least performing assets. Some sites and retail locations might work for Dish, but in general the rejects of another carrier’s are not the best foundation to build a real competitor.

Dish gets agreement to engage in negotiations with T-Mobile for Dish’s 600 MHz spectrum
Dish owns at least one license in all 486 nationwide license areas. This could serve as Dish’s low band frequency to cover in-building customers very well. T-Mobile has a 600 MHz nationwide license that it uses for its 5G network, especially in rural America. Neither AT&T nor Verizon were allowed to bid on the 600 MHz licenses and therefore are unlikely buyers. This makes T-Mobile the natural buyer.
More 600 MHz spectrum would always be useful for T-Mobile as it plans to bring wireless broadband and TV into the parts of the country that do not have broadband at all. At the same time, these parts of the country are where satellite TV providers like Dish are the strongest. It remains to be seen how likely Dish is to arm T-Mobile with more spectrum to attack satellite customers with a better and faster offer. The agreement to engage in a negotiation is not particularly meaningful, considering that all other negotiations to buy or sell spectrum have not needed an explicit agreement to negotiate.
As part of this agreement, Dish has also committed itself to build a 5G network with speeds exceeding 35 Mbps that covers 70% of the U.S. population with 5G by June 14, 2023 or it has to pay $2.2 billion to the U.S. government. Dish had also previously committed to the FCC to have deployed a core network and provide 5G service to more than 20% of the U.S. population by 2022. Dish’s AWS-4, 700 MHz, and H Block licenses need to cover 50% of the U.S. population by June 2023 to get a two-year build-out extension. All of the build-out requirements culminate in the 2022 and 2023 time frame. It’s either build out or return the licenses to the U.S. government.

What’s the impact on the market?
Currently, what the Dish deal actually represents is not that Dish is becoming a facilities-based network operator, but a $3.6 billion option to become one, when 5G Release 16 equipment becomes available.
By choosing to build a stand-alone 5G network, Dish puts itself at the mercy of the U.S./China trade conflict with all the ups and downs that come with it. With all the exuberance about a new entrant, we have to remember it will take several years for Dish to become a facilities-based operator. In the interim, Dish will be an MVNO with all the constraints that come with it. For decades the FCC did not consider MVNO full competitors as they are dependent on a network operator for its services and how the contract has been structured financially.
We also need to keep in mind that the T-Mobile/Sprint deal will not close until the lawsuit with the states is resolved. The trial pits now 15 state attorneys general against this deal, which could start as early as December. After the deal was approved by the Department of Justice, the Republican attorney general of Texas joined his 14 Democratic attorney generals. This development creates a lot of doubt about the notion that the Department of Justice conditions would address most if not all concerns of the state attorneys. The Republican Attorney General of Texas would not have gone against the Republication Department of Justice if he thought the remedies ordered in the federal approval of the merger would be anywhere near what he thought necessary. Just when T-Mobile, Sprint and Dish could hope for an easy settlement with the states, the new plaintiff clearly upset that notion.
The longer the state trial takes, the less time Dish has to build out as the deadline for 70% population coverage is fixed. We also cannot discount that Dish pulls out at the last moment and sells its spectrum. It’s spectrum is worth much more—with some estimates around $30 billion—than $3.6 billion that it paid for the Sprint prepaid business and the fine to the government. Not buying the 800 MHz from the New T-Mobile would cost only $72 million.
The other white elephant in the room is that Dish does not own millimeter wave (mmWave) spectrum. If a key differentiator of 5G is ultra-high speeds which are only achievable with the multiple hundreds of MHz wide channels, then Dish is at a serious disadvantage of being the only competitor in the market without it. The experience of the last decade has clearly shown that network quality and speed is indispensable for a wireless competitor—the lack of it was Sprint’s undoing.
Dish mentioned on their Q2 2019 earnings call that they intend to migrate from being an MVNO on T-Mobile’s core to being an MVNO on its own core to being a mobile network operator. A core-to-core connection between Dish’s and T-Mobile’s cores in conjunction with eSIM/dual SIM would allow seamless roaming with uninterrupted voice and data sessions as Dish customers would move on and off the respective networks.
On the network design level, Dish would build a fully virtualized 5G network, similar to Rakuten’s virtualized 4G network, including Open RAN and edge computing capabilities. This would allow Dish to build the network 25% cheaper and substantially lower operating costs. This, together with the MVNO deal, would allow Dish to be modestly profitable from the outset.
Dish also mentioned that it expects its network to cost $10 billion and that it would eventually need more funding. AT&T, Verizon, and soon the New T-Mobile will spend $10 billion every year to maintain and improve their already existing networks. Basically, $10 billion per year has become the standard capital expenditure spend for a nationwide carrier that wants to compete. Dish, without a network, will need more than $10 billion per year to catch up and be ready when the wholesale deal with T-Mobile expires in seven years. If it spends less like its peers, like Sprint did, Dish will suffer the same fate as Sprint.
Rolling out a wireless network city by city is not something that the U.S. wireless market has seen for 40 years. The nature of nationwide television advertising made it increasingly inefficient to go to market city by city but favored nationwide rollouts. A consumer could walk into a store anywhere in the United States and get the service they heard of.
It also gives competitors less insights of how the company will compete and more importantly less time to react to the product launch. A competitor that you see coming to new markets is not as impactful as one that launches nationwide. Digital advertising has made media campaigns a lot more surgical and localized but online only represents about 10% of wireless gross additions. It will be interesting to see how Dish is going to approach selling the different packages it is offering in different parts of the country.
Ultimately, Dish could be an aggressive competitor similar to what it is in satellite. Dish competes on price and features with good customer service. Unfortunately, at the current trajectory, the satellite business will become unprofitable in about three years as subscribers, revenue and profit are declining precipitously. The underlying profitability of Dish’s core satellite business, capital intensity of wireless, the hyper-competitiveness of the wireless industry, the vagaries of international politics, delays in technical standards, the fickleness of investors, and plain old execution risks are the biggest complicating factors in Dish becoming successful in wireless.
For T-Mobile, if the states’ suit gets successfully resolved, then T-Mobile got everything it wanted and had to give up on the things it didn’t want or need. Sprint’s prepaid business does not fit into T-Mobile’s brand line up with Metro by T-Mobile being their very successful prepaid brand.
Boost Mobile, Virgin Mobile USA and Sprint Prepaid are brands in distress and customer bases under pressure. If T-Mobile wouldn’t have found a buyer for them, they would have just let them wither on the vine collecting revenue from an ever smaller customer base.
The 14 MHz in the 800 MHz band is not enough spectrum to make a difference to T-Mobile, especially since it’s about only half of that along the border due to interference issues.
With the Sprint merger, T-Mobile has leapfrogged not only AT&T as second largest postpaid phone carrier, but it also has overtaken AT&T and Verizon in terms of traditional band spectrum, plus T-Mobile has more than 120 MHz in the 2500 MHz band. This lays the foundation for T-Mobile to regain the speed crown outside the 5G mmWave areas where their competitors have more spectrum deployed than T-Mobile.
When we combine Sprint’s spectrum with T-Mobile’s track record of 22 quarters of leading the industry in branded phone customer growth, we see a super-charged competitor that has now even more tools at its disposal to win against AT&T, Verizon and Dish. In Q2 2019, T-Mobile added 710,000 postpaid phone customers, AT&T added 72,000, Verizon added 245,000 and Sprint lost 128,000. In a nutshell, T-Mobile added more than twice as many valuable postpaid phone customers than AT&T and Verizon combined. With the Sprint acquisition, T-Mobile’s run of industry leading growth is likely to continue, if not accelerate.

Posted on by Roger Entner

If you missed our analyst call on Wednesday with Roger Entner, Peter Rysavy and Avi Greengart you can listen in now! Topics discussed included 5G network deployment, the future of smartphones in a 5G world, cloud computing, use cases for artificial intelligence, and more!

What to Listen For:

“Even though the opportunity to connect to 5G today is limited – it’s amazing that we can connect to 5G at all. Because when we started working on the standards we weren’t expecting any deployment until 2020. So we’re actually a year ahead of schedule which is remarkable for the complexity.” – Peter Rysavy, Rysavy Research

On the benefit of advancements in AI and AR technology: “If you’re trying to wire up an airplane, having a heads up display where it can show you how to wire up the airplane in real time, with overlays of what you’re seeing and what you should be seeing…the return on investment is crazy high. It’s so high in fact, that in that particular use case, Boeing and Airbus are willing to develop these systems in-house, building their own custom software, in some cases building their own custom hardware.” – Avi Greengart, Techsponential

“Another topic that’s going to be really interesting is the whole convergence issue of telecommunications with content…70% of wireless usage is video, and so video becomes more and more important and some of the more obscure things that nobody paid attention to will become much more prevalent. For example, the STELAR re-authorization.” – Roger Entner, Recon Analytics

Have Questions? Head to Twitter and Chat With Us:

Host Roger Entner: @RogerEntner
Peter Rysavy: @peter_rysavy
Avi Greengart: @greengart

Posted on by Roger Entner

Dish Network just threw its hat into another merger ring with its $25.5 billion bid to acquire Sprint. This follows Dish’s bid to purchase Clearwire, which Sprint was already in the process of purchasing. Dish’s announcement followed Friday’s news that Verizon Wireless is offering to purchase some spectrum from Clearwire, all while Crest Financial is adamantly opposing Sprint’s proposed  purchase of Clearwire. It looks like Sprint can’t catch a break here. Lets look at how the different constituents – Sprint shareholders, Sprint as the company, Sprint’s customers, Sprint’s competitiors, and the regulator – are affected:

Sprint shareholders are going to get more money. The Softbank offer values Sprint at slightly over $20 billion, while Dish’s offer values Sprint at over $25 billion. It is quite possible that Softbank will sweeten its offer to top that of Dish Network.

Sprint as a company is going to experience a longer phase of uncertainty. The company’s direction, while not in in limbo, will remain on the same course as it is now so as to preserve the opportunity to change direction for the new owners. Unfortunately for Sprint the current course includes postpaid customer losses and a course adjustment is very much needed. This is especially the case since T-Mobile has just announced a brand new positioning and Sprint as the other nationwide value leader brand needs to respond to it. The increased ability to bundle products with Dish could help make Sprint an integrated media company, an idea former Sprint CEO Gary Forsee always championed – unfortunately before its time. Maybe the time is right for Charlie Ergen? What speaks for Softbank is its expertise in running wireless networks and its deep pockets. Bringing Sprint’s network up to par after years of underinvestment will require significant financial resources which Softbank has in abundance.

Sprint customers might be the big winners when it comes to the ways Dish could bundle its offers with that of Sprint. How much can be bundled with linear television is yet to be seen after the MediaFlo flop. On-demand video on the other side is the major source of data consumption on wireless networks, but mostly short-form content rather than the movies that Dish has available through Blockbuster. With the huge infusion of additional spectral capacity, the post-merger company could support very high quality, very fast mobile video and other mobile data applications.  Dish’s traditional cost-cutting measures and low prices would make Sprint a solid value player. Dish is also known for its good customer service so customers would continue to benefit there. At the same time, they would forgo new impulses from Japan where customer service and network performance is legendary.

Sprint’s competitors, especially T-Mobile, will see this as a welcome development. As T-Mobile is going through a merger itself and is repositioning it as the “uncarrier” it benefits the most when its direct competitor for the value segment among the nationwide carriers has to battle warring suitors. Verizon and AT&T are probably standing by watching the spectacle in amazement. If Dish were to acquire Sprint, the combined company would hold more than double the amount of spectrum held by AT&T and Verizon, catapulting Sprint ahead of its competitors in terms of capacity to support intensive data use by subscribers.

Regulators must be feeling a tad embarrassed to be overtaken by events so quickly, yet again. Just last week the Department of Justice argued to the FCC that the agency limit AT&T and Verizon access to more spectrum in the upcoming incentive auctions and instead get the spectrum into the hands of the “smaller” national providers on the theory that the “smaller” providers needed the infusion of spectrum to compete.  Not even a week later, the proposed DISH/Sprint/Clearwire merger would create an operator that has 2.5-times as much spectrum as Verizon or AT&T. No fictional play could have made the Department of Justice’s position more untenable, more quickly. As the regulators desperately try to engineer the birth of another nationwide carrier, they forget how poorly such machinations have worked in the recent past. Terms like NextWave and LightSquared, seem to have evaporated from recent memory inside the Beltway. It will be interesting to see how this proposed transaction will be evaluated by the regulators, assuming the Sprint shareholders allow it to proceed. If nothing else, it’s another reminder that the wireless sector has a way of working issues out a lot faster than Washington.