T-Mobile/Sprint Deal Appears Down but Not Out; State Reviews Ongoing

With a federal decision on T-Mobile/Sprint likely close, the deal's fate is anything but certain. T-Mobile/Sprint also must pass state review, which some analysts see as a potential sticking point. Both stocks were down Wednesday after The Wall Street Journal reported Tuesday that DOJ staffers told the two companies the deal's unlikely to be approved as structured (see 1904160036). T-Mobile closed at $72.46, down 2.2 percent; Sprint at $5.64, down 6.16 percent. Analysts said the transaction's still alive, even if it’s in trouble.

T-Mobile CEO John Legere and Sprint Executive Chairman Marcelo Claure both countered the WSJ report. “The premise of this story … is simply untrue,” Legere tweeted. “We continue to have discussions with regulators about our proposed merger,” Claure said.

But the takeover “teeters toward collapse,” Free Press said: “This follows growing skepticism both inside and outside government that any of the companies’ merger claims will benefit the public.”

“In our view, the appearance that there is a back and forth between the DOJ and the companies should be read positively for chance of approval,” wrote Guggenheim Partners analyst Mike McCormack. There were no similar “smoke signals” from the DOJ or the FCC “leading up to the rejection of the AT&T/T-Mobile transaction in 2011,” McCormack said.

“Is this the end of the deal?” asked New Street’s Blair Levin: “It is certainly negative, though not unexpected.” DOJ could be contemplating a complex fix, such as requiring the companies to combine their network assets into a joint venture or wholesale entity, while “providing access to the remaining T-Mobile and Sprint assets,” Levin wrote. “The details will be complicated and matter both to the future of the companies and the entire sector.” But so far there have been no real discussions of that kind of solution in the public record, “suggesting that neither the DOJ staff nor the companies sees it as a viable option,” he said.

The two companies should soon have an answer from federal regulators, Levin said in a second note. “This process could end suddenly, end fairly suddenly, or drag on for another few months,” he said. “But there is light at the end of the tunnel.”

The DOJ opposed consolidation to a three-player wireless market eight years ago and “it is unclear why the DOJ would feel any differently about a 3 player market today given that it can actually point to the AT&T/[T-Mobile] deal break as the starting point for industry disruption, thereby bearing out its decision to reject the deal,” Barclays Capital told investors. But there are other markets in which regulators approved similar consolidation with conditions, the firm said. “DOJ could alternatively also seek structural remedies targeted at a particular segment of the market such as prepaid,” Barclays said. “If the DOJ was to go down these paths, [T-Mobile] may walk away from the transaction given the experience of its parent [Deutsche Telekom] in Germany after such conditions were imposed.”

There’s no reason to think regulators won’t approve the deal, though they could require the sale of spectrum or actions to ensure competition in the prepaid market, said Macquarie’s Amy Yong. “With no break-up fee, T-Mobile has said it will walk away from Sprint if concessions are too onerous to bear,” she said: “As this administration favors structural vs behavioral remedies, there’s a view that divestments are likely.”

“T-Mobile has made a long list of unenforceable promises concerning pricing, jobs and rural coverage in an attempt to put this merger to bed,” the Rural Wireless Association said. “Fortunately, DOJ is not buying these hollow promises and has put its foot down.”

Common Cause filed at the FCC more than 6,000 comments from its members opposing the transaction. “The T-Mobile/Sprint merger would reduce competition in the wireless market and lead to higher prices for wireless customers,” Common Cause said in docket 18-197.

Legere blogged Wednesday that the transaction is important for getting 5G coverage to rural America. “By combining our coverage-rich 600 MHz spectrum with Sprint’s capacity-rich 2.5 GHz spectrum, we’ll blanket more of the country with 5G service than either company could on its own,” he said.

Free State Foundation President Randolph May said DOJ may be getting the analysis wrong. “I fear that the Antitrust Division may be relying on an outdated static view of the relevant market rather than one that reflects today’s market dynamics,” May emailed. “The T-Mobile/Sprint combination will likely make the wireless market even more competitive by creating a stronger third place competitor behind Verizon and AT&T. Increasingly, it looks like a standalone Sprint will play a diminishing role as a competitive check.”

State Review

State commission reviews remain open in California, Hawaii and Pennsylvania, with a summer decision expected in California (see 1903260040). The carriers made 5G and digital inclusion commitments last week through an agreement with the California Emerging Technology Fund (CETF), after earlier agreeing to 5G commitments with Hawaii’s consumer advocate (see 1904080041 and 1904040005). Briefs are due April 26 at the California Public Utilities Commission.

CETF’s agreement didn’t alleviate others' opposition at the CPUC. The Communications Workers of America continues to oppose T-Mobile/Sprint as reducing jobs and increasing prices, said CWA Telecom Policy Director Debbie Goldman. The settlement contained a big 5G loophole, she emailed Wednesday. T-Mobile previously said it would achieve 5G buildout by 2024 but told CETF it would deploy 5G at only 90 percent of California cellsites by 2025, Goldman said. Fewer sites, one year later “is an admission that the network plan is only aspirational and regulators should not give it significant weight in assessing the purported ‘efficiencies’ from the merger,” she said.

The effort is appreciated and some parts help, but “the agreement does not make this transaction in the public interest, even on issues it addresses,” emailed The Utility Reform Network Managing Director-San Diego Christine Mailloux. TURN plans to respond soon at the CPUC, she said.

Agreements like CETF’s are “a common feature of CPUC telecoms merger reviews,” Tellus Venture Associates President Steve Blum blogged this week. “CETF raised objections to Charter’s takeover of Time Warner Cable’s systems and Frontier’s acquisition of Verizon’s wireline territory in California, and reached megabuck settlements.” But it’s “no sure thing” the agreement will make a difference to the CPUC, Blum said: “Much of the ongoing review has focused on the microeconomic impact of reducing mobile broadband competition in California, which this agreement doesn’t address.”

The deal also faces scrutiny by state attorneys general -- with Bloomberg reporting more than a dozen involved, led by Democratic AGs in New York and California. “It’s not a surprising development, particularly in an era of more activist AGs who see themselves as ‘correctives’ to the actions of the Trump administration,” emailed Wilkinson Barker attorney Ray Gifford. “This would be a particularly rich -- and ill-fated -- move though because one area where the federal government has not been shy … is in overreaching antitrust enforcement.” States historically have relied on utility commissions to “extract promises and goodies,” Gifford said. Tapping AGs “would represent a new, if legally unavailing, path,” though “the point may just be delay and increased extraction from the merging parties, not ultimate legal vindication.”