T-Mobile/Sprint Foes Fear ‘End Run’ Around California Review

T-Mobile/Sprint opponents rang alarm bells after the carriers laid the foundation to possibly close their deal without California OK (see 2003310017). Sprint advised the California Public Utilities Commission Monday evening it's relinquishing its state certificate. The two carriers moved to withdraw their wireline transfer-of-control application. It could mean the companies close the multibillion-dollar combination as soon as Wednesday, analysts said.

“T-Mobile is trying to do an end run around the CPUC approval process, putting their artificial timetable for closing the deal ahead of public interest concerns,” a Communications Workers of America spokesperson emailed Tuesday. It’s the companies’ latest attempt to avoid “thorough and meaningful review,” emailed The Utility Reform Network Managing Director-San Diego Christine Mailloux. The TURN representative said the commission “has clear authority to protect California consumers in the face of anti-competitive mergers.” If granted, the motion shouldn’t be a barrier to conditions, she said.

Nearly two years after T-Mobile and Sprint sought California OK, “the nature of Sprint Wireline’s services has changed, and approval for the wireline transaction under California Public Utilities Code § 854(a) is no longer required,” the carriers said in dockets including A.18-07-011. Sprint completed transitioning wireline services to VoIP, an information and interstate service that’s not regulated by the state, they said. The carriers filed the motion about 20 minutes before the CPUC closed Monday, and the agency was off Tuesday for Cesar Chavez Day. The wireless providers didn’t comment.

They didn’t ask to withdraw a filing that they are combining wireless assets. Deal watchers said the state agency’s authority over wireless is murky. Carriers earlier argued the CPUC only needed to OK the wireline transaction. T-Mobile had said it wanted to close April 1 (see 2002200066), but commissioners were expected to vote April 16 on a proposed decision to clear the deal with conditions (see 2003110043). Comments are due Wednesday.

“Timing is definitely driving this unusual action,” emailed former Commissioner Rachelle Chong. “The theory is CPUC approval is not required for wireless company transfers of control.” Commission precedent may support the carriers’ maneuver, said Chong, who works with the California Emerging Technology Fund. CETF is a deal supporter. The CPUC fined Mitel $21,000 last year for closing a transaction with MLN TopCo without approval, but didn’t try to unwind the deal. Mitel had converted business customers to VoIP, registered as a VoIP provider and gave up its wireline certificate, Chong said: the company argued the classification change meant no OK was needed. Sprint cited the Mitel case.

The carriers’ actions raise “several legal issues which require substantial analysis,” emailed Santa Clara University School of Law professor Catherine Sandoval, another former commissioner. “Several jurisdictional matters the motion asserts are matters of substantial legal dispute. This filing may elongate rather than truncate the timeline for resolving the CPUC proceeding.” The agency may reject T-Mobile and Sprint's motion and vote on the proposed decision after replies, she said. Voting could be delayed if the CPUC extends replies. Sandoval expects the agency to argue it has jurisdiction to condition transfers of wireless facilities and isn't pre-empted by the federal Omnibus Budget Reconciliation Act limiting state jurisdiction, she said. The 1993 law amended the federal Communications Act's Section 332.

This sets the stage to close without the regulator's nod, and provide a basis to challenge any conditions, Tellus Venture Associates President Steve Blum blogged Tuesday. The commission can deny or ignore the motion to withdraw the wireline application, and there could be “months of wrangling” over Sprint abandoning its certificate, noted Blum, a telecom consultant for California local governments. “But once the transaction is closed, it’ll be difficult to unwind, even if yesterday’s gambit is ultimately rejected by a court. We might know as soon as [Wednesday] whether the companies will try to cowboy it out and complete the merger while the CPUC is chewing it over.”

“It appears that T-Mobile is making the final preparations for an April 1st closing,” LightShed Partners analyst Walt Piecyk emailed us.

“This looks like a precursor to the companies closing their merger” Wednesday, New Street Research analysts wrote investors Tuesday. The carriers had been saying they wanted to wrap up the deal then, they noted. “It would allow the companies to get started with the integration process a month earlier, putting them in a better position to meet their target of relaunching the combined business with unified pricing sometime in 3Q20.”

T-Mobile and Sprint await Tunney Act approval by Judge Timothy Kelly of U.S. District Court for the District of Columbia. "We believe the companies can consummate the merger prior to a final judgement, though they will usually enter into a stipulation order whereby they agree to comply with any new provisions contained in the final judgement," emailed New Street's Jonathan Chaplin. Kelly signed such a stipulation (in Pacer) July 29 by the wireless carriers, Dish Network and DOJ. Kelly promised a decision by March 31, and Chaplin “wouldn’t blame T-Mobile for going around” the court as it has the CPUC, he said.

Three minority advocacy groups endorsed the deal in letters Monday to assigned Commissioner Cliff Rechtschaffen. Commitments made to the FCC and CETF address concerns about deployment timing and minimum speeds, wrote National Action Network-Sacramento President Tecoy Porter. The National Diversity Coalition and California Hispanic Chambers of Commerce also supported the deal. None of those three groups commented.