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FCC, DoJ at loggerheads for first time in T-Mobile mega merger

It will take more than a limp wave of support from FCC Chairman Ajit Pai to convince the Department of Justice to approve the $26.5 billion merger between T-Mobile and Sprint, despite the two telcos offering a number of concessions. A source speaking to Bloomberg this week claims DoJ top dogs are in favor of blocking the deal due to anti-competitive implications.

As pointed out in the report, the FCC and DoJ have never before locked horns by coming to contrasting conclusions with regard to a merger. It’s therefore probably about time and there would be something poetic about it happening under Pai’s reign.

It means the coming months could signal a war of words between Pai and DoJ Chief Makan Delrahim, who of course famously sued to block the merger between AT&T and Time Warner back in 2017. We think it’s safe to say this mega merger will be forever in the back of Delrahim’s mind given the accusations from rivals about AT&T unfairly exploiting its ownership of Time Warner. Of course, this was a cross-industry merger and therefore much more likely to receive antitrust approval than T-Mobile and Sprint.

Pai argued the case for 5G coverage, echoing the promises made by T-Mobile. “The companies have committed to deploying a 5G network that would cover 97% of our nation’s population within three years of the closing of the merger and 99% of Americans within six years. This 5G network would also reach deep into rural areas, with 85% of rural Americans covered within three years and 90% covered within six years. Additionally, T-Mobile and Sprint have guaranteed that 90% of Americans would have access to mobile broadband service at speeds of at least 100 Mbps and 99% would have access to speeds of at least 50 Mbps,” said Pai earlier this week.

Supporting broadband and multiplay services like video are key to T-Mobile’s case in point. “Moreover, the companies have offered specific commitments regarding the rollout of an in-home broadband product, including to rural households. This would give many Americans another option for home broadband service,” he added.

We now know TMobile and Sprint are considering a sale of the prepaid business Boost Mobile as a concession for earning regulatory approval in the $26.5 billion merger to form New T-Mobile. Selling spectrum licenses and setting up a fourth carrier were reportedly two less attractive options than the aforementioned sale. The companies have also committed to freezing prices for three years. But clearly this isn’t where the Justice Department sees the red flags planted, in a business of 1.1 million subscribers, adding 69,000 in the last quarter, which wains in comparison to the behemoth of a postpaid business approaching 39 million subscribers.  In Q1, T-Mobile once again exceeded a million customers additions in a single quarter, recording 1.65 million additions which boosted revenue by 7% to $11.1 billion for the quarter.

But while TMO has used marketing expertise and canny pricing to leapfrog its would-be merger partner, Sprint has suffered years of customer defections, caused by network failings and poor customer service. Despite big investments in these areas in recent years and a major change of management, its fiscal fourth quarter results were depressingly familiar, with 189,000 postpaid customers leaving – a sad reversal of the year-ago quarter, when Sprint reported net additions of 55,000.

None of this bodes well for its 5G future, especially if regulators prevent its proposed merger with T-Mobile. Sprint brings its only unique asset to that marriage – its plentiful supply of 2.5 GHz spectrum, the kind of midband airwaves that are ideal for 5G capacity, without the risks of millimeter wave, and which the larger operators lack. It would complement T-Mobile’s national 600 MHz spectrum very well, supporting a balance of coverage and capacity.

“It’s also important that the companies would suffer serious consequences if they fail to follow through on their commitments to the FCC. These consequences, which could include total payments to the US Treasury of billions of dollars, create a powerful incentive for the companies to meet their commitments on time,” warned Pai.

The deadline for a decision regarding the formation of New T-Mobile was recently extended to July 29, allowing extra time to seek regulatory approval.

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