DOJ Antitrust Chief Says No Decision on T-Mobile/Sprint; Completion Date Postponed

DOJ has made no decision on T-Mobile buying Sprint, antitrust chief Makan Delrahim told CNBC Monday, in perhaps his most complete comments yet on the deal, which as of Monday is a year old. Delrahim said there’s no magic number of national carriers to guarantee wireless competition. T-Mobile and Sprint, meanwhile, postponed the deadline for completing the deal from Monday to July 29, said an SEC filing.

T-Mobile and Sprint asked the California Public Utilities Commission to break off and quickly approve the wireline part of their transaction as opponents piled on the wireless deal in briefs due Friday in docket A1807011. The carriers say they don’t need California OK for that aspect. They stressed deal's benefits and discussed commitments in an April 23 meeting with CPUC Commissioner Martha Guzman Aceves and a representative for California Attorney General Xavier Becerra (D), said a Friday notice.

“I have not made up my mind,” Delrahim said on CNBC. “The investigation continues. We’ve requested some data from the companies that will be forthcoming.” Justice will “be open to meeting as long as there’s a need to meet,” he said.

Delrahim said he doesn’t have a magic number in mind on how many national wireless carriers is enough. One of the big criticisms is the deal will reduce that number from four to three. “Obviously, the more competitors you have in any market, you might have more competition, but there is no magical number in any markets,” he said: There "could just be one competitor. That could be fine.”

A regulated industry like wireless does have some barriers to entry, Delrahim said. “You can’t just go out and put out cellsites all around,” he said. “There is a regulatory barrier to entry. Those are factors we consider.”

Discussions with the two companies could continue past the June 4 expiration of the FCC’s unofficial 180-day shot clock, Delrahim said. “We don’t have a specific deadline.” T-Mobile CEO John Legere said last week federal regulators should clear the transaction by June 30 (see 1904250065).

New Street’s Blair Levin told investors a meeting last week between officials of the two companies and aides to FCC Chairman Ajit Pai shows the deal faces big questions. “While the [economic] modeling is complicated, it is late in the game for the companies to still be facing questions about the efficacy of the model,” Levin said. “The ex parte continued the T-Mobile assault on the use of porting data, the kind of issue that usually in these proceedings is resolved well before the parties offer their closing arguments.”

“Delrahim was clear that the DOJ is investigating whether the deal will have a price effect on the wireless market,” said BTIG’s Walter Piecyk. “We remain at 35 percent odds the deal is approved, as proposed.”

California

Carriers’ wireline application and wireless notification "present fundamentally distinct factual and legal issues (including fundamentally different jurisdictional issues) … and therefore the resolution of each should be, and can be, independent of the other,” T-Mobile and Sprint said. “The Wireless Notification does not seek the Commission’s approval for any action under Public Utilities Code § 854(a), but instead affords the Commission advance notice of the Joint Applicants’ intent to transfer control of the Sprint Wireless CA Entities to T-Mobile USA.” The wireline deal will be seamless for customers, won't hurt competition, and will strengthen Sprint's wireline business with more resources, satisfying the CPUC’s public-interest test, they said.

"Those who oppose this merger would simply perpetuate the dominance of the two dominant wireless carriers, AT&T and Verizon (and the monopolistic cable companies)," T-Mobile and Sprint added Monday. Those who favor the status quo are also ignoring that, absent this combination, Sprint and T-Mobile would be increasingly less likely to provide meaningful competition to the dominant incumbent wireless providers, they said.

The Utility Reform Network urged the CPUC not to separate the applications. The state regulator "should look at this transaction holistically," TURN Managing Director-San Diego Christine Mailloux emailed us Monday. "There is no doubt that the wireless transaction is driving the motivation here while the wireline transaction is on the sidelines. It is my understanding that one transaction will not close without the other, so there does not appear to be any value in having the wireline transaction move forward independently."

Like what would have happened when AT&T tried to buy T-Mobile, "New T-Mobile likely would be less disciplined by competitive forces and better able to coordinate with the remaining industry players, likely leading to higher prices and less choice for consumers,” commented Dish Network. Unlike AT&T/T-Mobile, this deal will result in "roughly comparable market shares among the three remaining carriers," encouraging inappropriate coordination, Dish said.

“The merger will be bad for California and should be denied,” the CPUC Public Advocates Office (PAO) said. “The Commission cannot regulate wireless rates due to federal preemption, and the FCC has regularly exercised forbearance. But with such high market concentration and the substantial financial and technical barriers to entry for a new MNO entering the market, lack of competition means that prices will rise and quality and innovation will suffer.” State commissioners “should be skeptical of whether continued regulatory forbearance by the FCC will protect consumers in California,” the office said. “Continued forbearance is not in the public interest, and in the absence of rate regulation the Commission should use its statutory authority to deny the merger.”

Conditions

Conditions wouldn’t fully mitigate the deal’s risks to California, but if CPUC decides to OK it, "it should develop and adopt performance-based mitigating measures that are specific, measurable, enforceable, and easily monitored on an on-going basis to ensure compliance,” PAO said. The office proposed 18 conditions involving rural and low-income customers, the wholesale market, wireless speeds, service quality standards, backup batteries, wireless next-generation 911 and data breach notification.

TURN seeks conditions if approved but now opposes the deal, it said. Carriers' "key promises are only as good as the competitive forces that remain in play,” it said. Their low-income and rural commitments lack detail, it said. Potential benefits won't “mitigate the disproportionate impact on the prepaid wireless market and California's most vulnerable customers from a loss of a facilities based competitor that fully participated in the prepaid market.” Backup power measures are particularly important as multiday power outages from wildfires become more prevalent, TURN added.

The deal "would eliminate more than 3,000 California jobs, increase wireless employers’ power to unilaterally set wages and combine two companies with a long history of labor and employment violations,” said Communications Workers of America District 9. The merger partners don’t seem committed to diversifying its board, workforce or suppliers, said the Greenlining Institute: “T-Mobile has acted like a company that does not take diversity and inclusion seriously.” PAO, TURN and CWA earlier rejected the carriers’ settlement to resolve the California Emerging Technology Fund’s concerns (see 1904240048).

Wells Fargo’s Jennifer Fritzsche said if state clearances take a long time, if could be bad news for the companies. “Time is a precious commodity in most of life -- but time may be foe, not friend to this process,” she told investors. “Our concern is that if this merger is still ‘hanging out’ there in the Fall, it could become part of the election cycle dialogue.”

American Enterprise Institute visiting scholar Mark Jamison said complaints that the combination would reduce the number of national carriers from four to three shows the need for a rethinking tech-deal policy. “These companies no longer compete as wireless carriers, but as systems of networking and content,” Jamison blogged Monday. “AT&T-DirecTV-Time Warner uses multiple technologies to deliver a variety of networking and content services. Verizon-Yahoo-HuffPost-TechCrunch provides a different mix of services.”