Darkness Gathers Over T-Mobile/Sprint Merger
After months of what appeared to be mostly positive signs surrounding the proposed merger between T-Mobile and Sprint, a confluence of recent developments are raising new questions about whether the nation’s third and fourth-largest wireless network operators will be able to consummate their transaction.
Perhaps the noisiest development on the topic is the disclosure by the Washington Post that T-Mobile executives may have been seeking to curry favor with the Trump administration by staying at President Trump’s hotel. According to the publication, the day after Sprint and T-Mobile announced their plans to merge in April, nine top T-Mobile executives checked into the Trump International Hotel in Washington, D.C. And since then T-Mobile executives have routinely stayed at the hotel while working to garner support for the company’s merger with Congressional leaders as well as Trump administration officials at the Department of Justice and the FCC.
The Washington Post report sent reverberations throughout the wider tech and policy community, with a number of other news organizations pointing to it. The report even reached the front page of the popular website Reddit, generating thousands of mostly negative comments from the site’s users.
This isn’t the first time that the intersection of Trump’s business and his role as president has raised concerns. But it nonetheless adds a gritty edge to a merger that Sprint and T-Mobile executives had hoped to position in the brightest and most positive light among regulators and the wider public.
Further, the Washington Post report isn’t the only factor working against Sprint and T-Mobile, which argue that their merger would lead to the creation of the nation’s biggest and most capable 5G network while at the same time lowering prices for customers and creating new jobs. (See Can the ‘New’ T-Mobile Make America’s Networks Great Again?)
For example, the Capitol Forum — a D.C.-based investigative news outlet focusing in part on mergers and acquisitions — recently reported that attorney general offices of California and New York are stepping up their investigations into the proposed merger. Meanwhile, the publication noted, antitrust staff at the DoJ are focusing their questioning on executives from cable providers, and are increasingly coordinating their efforts with state regulators.
Indeed, the California Public Utilities Commission (CPUC) is holding a series of public hearings this week on the proposed transaction between Sprint and T-Mobile. According to local reports, the first of the hearings drew both supporters and opponents of the deal. Proponents generally argued the merger would create more jobs and a stronger competitor to AT&T and Verizon, while opponents worried that the elimination of a fourth major player in the wireless industry would ultimately raise prices for customers and lead to job cuts at the combined company.
Partly to counter those concerns on the state level, two former attorneys general penned an opinion column in The Hill to argue in favor of the proposed merger. “It will create substantial consumer benefits by giving the combined company the spectrum, assets and scale to more effectively challenge larger players,” wrote Martha Coakley, who served as the Democratic attorney general for Massachusetts from 2007 to 2015, and Rob McKenna, who served as the Republican attorney general for the state of Washington from 2005 to 2013.
Importantly, both Coakley and McKenna are advisors to T-Mobile.
Other state regulators were decidedly less supportive. “I am concerned about Sprint and T-Mobile merger. Concerned it would increase labor market concentration in the U.S. labor markets; concentration of employers is one of the reasons wages have stagnated over the last decades,” tweeted Keith Ellison, Minnesota’s current Democratic attorney general.
So what to make of the state investigations into the merger of Sprint and T-Mobile? “There are a number of PUC [state Public Utility Commission] proceedings underway, which we think will not be a stumbling block for the deal,” wrote the Wall Street analysts at New Street Research in a recent report to investors. “One should not assume, however, that if a state PUC approves the deal, that action precludes the Attorney General of the state from joining in a lawsuit to block the deal on competition grounds.”
“A separate action by the state attorneys generals represents a material risk to the deal,” the analysts added.
However, according to the New Street analysts, state attorneys generals aren’t the only regulators that may make a major move against the proposed transaction. The firm reviewed a wide range of filings that Sprint and T-Mobile have made to the FCC in recent months, and came to the conclusion that many of the arguments in favor of the merger are falling on skeptical regulators. “The kind of questions being raised suggest to us that despite an excellent public effort, and statements from some Administration officials that can be interpreted as supportive of the deal, the companies have not yet overcome the analytic barriers they need to in order to gain approval,” the analysts wrote, adding though that many of the filings are heavily redacted and that it’s therefore difficult to make concrete conclusions.
“We don’t think the results should be comforting for those who think a decision is near or nearly certain to be favorable,” the analysts wrote of their perusal of the filings.
A final and equally concerning factor facing T-Mobile and Sprint executives is the possibility of a major delay in the government’s approval process. The ongoing government shutdown, coupled with an as-yet-unapproved incoming U.S. attorney general, may push a federal decision on the transaction into the third quarter of this year, the New Street analysts warned. Sprint and T-Mobile executives have consistently hoped for their proposed merger to close in the first half of 2019.
According to the Capitol Forum, the FCC suspended its review of the proposed merger due to the government shutdown, and most antitrust DoJ employees won’t continue to work after the division’s funding runs out. Both the FCC and the DoJ must sign off on the proposed transaction, and it’s unclear how their respective reviews will proceed considering there is no end in sight for the ongoing government shutdown.
The situation is further complicated by William Barr, President Trump’s selection as the new U.S. attorney general. If he is approved, Barr will oversee the Department of Justice as well as the agency’s antitrust division that is reviewing the merger of Sprint and T-Mobile. The analysts at New Street speculated that Barr likely will be favorable toward the merger — however, they noted that Barr has had conflicts in the past with Makan Delrahim, the current head of the DoJ’s antitrust division, and may therefore move to replace him. If Barr does replace Delrahim, that could further delay a DoJ review of the proposed merger between Sprint and T-Mobile.
Concluded the New Street analysts: “A delay in the decision is far from fatal but there is no way in which it is helpful and there are many ways in which it can incrementally reduce the odds of approval.”
There is no doubt that the leadership teams of Sprint and T-Mobile are watching all these developments carefully. After all, a merger between the two companies would represent a sea change to the U.S. wireless industry by creating a company with a massive customer base and massive spectrum holdings — one that would undoubtedly challenge AT&T and Verizon, the current market heavyweights.
The merger, if approved, could also have significant ramifications for the development of 5G network technology in the United States. Although Sprint and T-Mobile are both well into their initial 5G efforts, a merger between the two companies would give the resulting wireless operator massive spectrum holdings stretching from 600MHz to 2.5GHz. Indeed, T-Mobile has promised that, if it is able to merge with Sprint and obtain the company’s spectrum holdings, it will spend $40 billion over three years to be able to provide peak 5G data speeds up to 4.1Gbps and average speeds of about 444Mbps. The company has also promised to enter the market for wired Internet services by challenging the likes of Comcast and Charter with a 5G-powered home Internet service.