Pai T-Mobile/Sprint OK Seen Likely Signaling DOJ Onboard

FCC Chairman Ajit Pai’s announcing ahead of DOJ his proposed approval of T-Mobile's buy of Sprint bucks some precedent under which the commission almost always announces second. It short-circuits the process and simplifies imposition of conditions on the transaction, said lawyers active in the proceeding. If Justice seeks conditions, it would have had to go to court to oppose the deal absent concessions by the companies. Pai's announcement was coordinated with DOJ, the lawyers said.

FCC Chief of Staff Matthew Berry played a critical role in interagency coordination and pushing T-Mobile and Sprint for conditions they agreed to in a filing posted Monday in docket 18-197. Groups and companies that have lined up against the deal remain opposed. The FCC and the department didn’t comment.

Commissioner Jessica Rosenworcel tweeted about her concerns. Commissioner Brendan Carr quickly made a statement backing Pai (see 1905200004). While dissents are possible, Pai should have no problems getting a yes vote, backed by Carr and Mike O’Rielly, industry officials said. Only Democratic Commissioner Geoffrey Starks wasn't commenting.

“I'm reviewing the conditions that have been proposed by the carriers and blessed by my colleagues,” Rosenworcel tweeted Monday: “You should have the right to do so, too. The @FCC should put them out for comment.” Rosenworcel also tweeted: “We've seen this kind of consolidation in airlines and with drug companies. It hasn't worked out well for consumers.”

“The proposed transaction will strengthen competition in the U.S. wireless market and provide mobile and in-home broadband access to communities that demand better coverage and more choices,” Carr said. “I am inclined to support T-Mobile/Sprint proposed merger, even if not convinced of the need for all the newly announced conditions being proposed,” O’Rielly tweeted.

Wall Street is now betting the deal will be completed. Sprint Monday closed up 19 percent to $7.34. That's putting Sprint about 70 cents below the T-Mobile purchase price announced last year. The gap had previously been wider.

T-Mobile and Sprint made numerous concessions to the FCC to get approval. The new T-Mobile agreed to sell off Boost, Sprint’s prepaid business, and to a nationwide 5G buildout, with billions of dollars in potential penalties if it doesn’t meet its commitments. While the company would sell Boost, it would retain Metro, a larger prepaid operator.

The companies agreed to find and identify to the FCC a “credible” buyer of Boost within 120 days of closing, “subject to two 30-day extensions.” They agreed to abide by a February commitment to freeze prices for three years and to cover at least 99 percent of the U.S. population with low-band 5G and 88 percent with mid-band, within six years. The companies also agreed to install a redacted number of 5G cellsites nationwide, each covered by a redacted amount of spectrum.

Noncompliance Penalties

FCC officials said Monday the combined company faces recurring penalties of as much as $2.4 billion if it fails to meet its buildout targets.

“Applicants take these commitments seriously, expect to be held to their word, and they are prepared for financial consequences if they fail to do so,” the filing said. “Applicants commit to a verification and enforcement regime of unprecedented rigor. Failure to meet New T-Mobile’s obligations will trigger severe, increasing, and continuing voluntary contributions that will make failure prohibitively expensive.”

“As our nation moves toward 5G, this leap forward in mobile broadband technology needs to reach all Americans wherever they are, in cities and rural locations alike, and the merger will help achieve this goal,” emailed former Commissioner Mignon Clyburn, who has been working for the companies.

The deal is likely to be approved, New Street’s Jonathan Chaplin and analysts at other firms told investors Monday. “Expect the DOJ to be in agreement with the FCC," Chaplin wrote: State attorneys general "may still sue; however, the odds of them winning have fallen and so their appetite to sue should too.” New Street gives 80 percent odds of the deal getting U.S. OK.

Georgetown University Law Center Institute for Public Representation's Andrew Schwartzman, an opponent, agreed the deal is very likely to be completed. “I was among those guessing that the likelihood of approval was about 50-50, so any agreement is something of a surprise,” he said. “It is possible, but rather unlikely, that DOJ will still oppose the deal. However, that is not the end of it, as it is also quite possible that one or more states will challenge the transaction.”

States

The carriers still need OKs from California, Hawaii and Pennsylvania utility regulators.

Some state AGs have been monitoring the deal. About 16 sought access to confidential numbering resource utilization and forecast reports filed by wireless carriers and disaggregated, carrier-specific local number portability data (see 1904250065).

“It’s still under commission review,” a Pennsylvania Public Utility Commission spokesperson said. The PUC next meets Thursday, with an agenda to be released Wednesday. Sprint responded May 13 to the PUC staff’s fifth data request; no additional staff data request is in docket A-2018-3003259. The Hawaii PUC "is completing its review of the application and expects to issue a decision and order shortly," a spokesperson said. The California Public Utilities Commission didn’t comment Monday.

CPUC review could wrap as soon as July or last into fall, said California watchers. The state commission received reply briefs May 10 (see 1905130018).The CPUC typically issues a proposed decision (PD) 30 days later, then allows 30 days for comment before the commissioners vote, which would put a decision in July, said Paul Goodman, technology equity director for deal foe the Greenlining Institute.

Former CPUC Commissioner Catherine Sandoval predicts a longer time frame, including 60 to 90 days before the agency closes the record, a PD 30-45 days later with 30 more days for comments. The state commission's administrative law judge likely won't issue a PD "until the end of August or beginning of September with a vote in October,” she emailed Monday. “If another Commissioner issues an alternate proposed decision that would add at least two months to the timeline. CPUC timeline could move up by 30-60 days if the record closes earlier, but it appears the CPUC is still examining info.”

It’s unlikely the CPUC will vote before July, and a “major change in the structure of the deal could significantly delay the CPUC's decision,” emailed Tellus Venture Associates President Stephen Blum, consultant for local governments. The carriers’ proposal to divest Boost Mobile is one thing that could be viewed as a major change, he said. “If the administrative law judge managing the case decides another round of comments and replies is needed, then we're looking at August.”

Eyes on DOJ

Opponents aren’t giving ground. Some hope DOJ tries to block the deal.

The 4Competition Coalition, which represents the main groups opposed, said the concessions won’t help. “The conditions being proposed today are wholly insufficient to protect consumers against the clear competitive harms this market-consolidating merger would bring,” said an emailed statement. “They do nothing to alleviate the reduction in choice for hundreds of millions of wireless users. They do nothing to ameliorate the anticompetitive effects that come from eliminating the industry’s most active wholesale competitor, harms that would befall rural Americans in particular.” The coalition includes AFL-CIO, the Communications Workers of America, Common Cause, C Spire, Dish Network and NTCA.

“It is unclear why the Chairman has issued his statement without referencing the DOJ’s ongoing work on this matter,” said Phillip Berenbroick, senior policy counsel at Public Knowledge. Pai has “decried” rate regulation and backroom deals in other transactions, Berenbroick said in an interview. “I thought it would be a cold day in hell before this chairman’s office signed up to do rate regulation of broadband providers, but we’ve been proven wrong.”

Yosef Getachew, director of the Media & Democracy Program at Common Cause, said DOJ still might reject the deal. The agreement “doesn’t address the public interest harms,” he said. “I don’t think it’s a done deal,” he said. “We still haven’t heard from DOJ. … The competitive harms are clear.”

New Street’s Blair Levin said in a note to investors that DOJ Antitrust Chief Makan Delrahim may announce “he believes the deal should not be blocked and approves it without a consent decree, thus avoiding a Tunney Act proceeding.” Levin noted that recent comments by Delrahim suggest “a comfort with the deal being subject to behavioral conditions administered by someone else.” The biggest risk remains states suing to block the transaction, he said.

Opponents

“The T-Mobile-Sprint merger is still anticompetitive and anti-consumer,” emailed Benton Foundation Senior Fellow Gigi Sohn. “The companies have made a handful of promises on 5G, rural buildout and in-home broadband that are speculative, not specific to the merger and completely unenforceable.”

Consumer Reports continues to oppose the deal. “This merger would do nothing to advance innovation or bring any improvements for consumers,” said George Slover, senior policy counsel. “It would simply mean fewer choices for consumers, higher prices and lower quality.” NTCA, the Rural Wireless Association and Wireless ISP Association called for more review.

“To curry favor for its merger, New T-Mobile is now making many promises -- including a blanket and baseless pledge to solve rural broadband deployment challenges,” said NTCA CEO Shirley Bloomfield. “Only a small handful of individuals were at the table, negotiating matters that have a wide-ranging effect on U.S. communications policy, rural Americans and the providers -- like WISPA’s members,” said WISPA President Claude Aiken.

“If an FCC review of mergers must take place at all, then it should rest only on economic and technological rationales, allowing the merger to succeed or fail based upon those merits and do so in short order,” said Bartlett Cleland, American Legislative Exchange Council general counsel. “It should be a done deal. Multiple federal government reviews, much less the diversity of state reviews, amounts to little more than the piling on of conditions simply burdens one competitor.”