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T-Mobile US Inc. and Sprint Corp. said their proposed combination will ensure the U.S. leads the world in 5G wireless technology, but antitrust lawyers said that’s a nonstarter argument for regulators.
The company’s other main talking point for their $26.5 billion merger — that Sprint could go under without the deal — is even less likely to fly with antitrust enforcers.
“It is hard to see an argument that the companies can make that this merger is credible and would show that it wouldn’t be harmful for consumers and competition,” Phillip Berenbroick, senior policy counsel at Public Knowledge, told Bloomberg Law.
A handful of analysts interviewed by Bloomberg Law give the deal a 50/50 shot in obtaining regulatory clearance. The two companies discussed merging in 2014 but backed off when antitrust challenges became apparent.
Now, as then, the deal requires approvals from both the Justice Department and the Federal Communications Commission. Bloomberg Intelligence litigation analysts predict that if the Sprint-T-Mobile deal is greenlighted by the DOJ, the FCC would similarly grant approval.
The biggest challenge will be “convincing the DOJ and the FCC that the benefits of the transaction to U.S. consumers outweigh the risks of anticompetitive effects from reducing national carriers from four to three,” Fiona Schaeffer, partner at Milbank, Tweed, Hadley & McCloy LLP in New York, told Bloomberg Law.
T-Mobile now ranks third in the U.S. in terms of its subscribers. Sprint is fourth. The companies said combining the third- and fourth-largest wireless providers into a stronger company will boost its economic foothold against dominant players, AT&T Inc. and Verizon Communications Inc. The combined entity would operate under T-Mobile’s name and surpass AT&T to become the second-largest provider.
“National champion arguments traditionally don’t get traction with the U.S. agencies,” Schaeffer said. It’s a type of argument that is more effective in China, she added. “It remains to be seen if the Trump administration is more receptive to that argument and whether that will translate to the FCC and Justice Department.”
T-Mobile CEO John Legere and Sprint CEO Marcelo Claure are making the media rounds pitching the new T-Mobile as a necessity to ensure American success in the race to 5G, the next generation of wireless technology.
“Only the new T-Mobile will have the network and spectrum capacity to quickly create a broad and deep 5G network in the first few years of the 5G innovation cycle, the years that will determine if American firms lead or follow in the 5G digital economy,” Legere said in an April 29 announcement.
But that argument is missing a key component, said Michael Carrier, professor at Rutgers Law School who specializes in antitrust issues, told Bloomberg Law. Both companies need to show cost savings to consumers that only this merger would allow. 5G can’t be seen as “merger-specific” since both companies separately discussed their own 5G rollout plans before the merger announcement.
The idea that only T-Mobile-Sprint is capable of 5G’s development in the U.S. is a “creative” argument, Berenbroick said. If nothing else, it plays on the growing fervor surrounding the evolution of 5G. Even President Donald Trump has recognized its importance, saying he would consider nationalizing America’s 5G network.
For Sprint, whose low-price strategy for attracting customers has hampered its growth, a merger with T-Mobile could invigorate the struggling operator that’s stuck with a $32 billion net debt load. Analysts have predicted Sprint’s eventual downfall for years.
A “failing firm defense,” which would permit an otherwise unlawful merger to complete based on the fact that the seller is approaching insolvency, is a long shot in Sprint-T-Mobile’s case, said Jennifer Rie, senior litigation analyst in antitrust for Bloomberg Intelligence.
“It requires proof that the seller (here Sprint) is in danger of imminent business failure and can’t reorganize successfully in bankruptcy and has made unsuccessful good faith efforts to find alternative purchasers,” she said. “I’d be surprised if Sprint could meet those elements.”
Sprint and T-Mobile argue that a combined entity will provide the bandwidth to compete at a greater scale against AT&T and Verizon. Giving AT&T a stronger rival will spurring innovation and growth in the entire telecom sector, a joint Sprint-T-Mobile press release stated.
The merger will create a company with 99.6 million retail wireless customers, based on 2017 year-end figures from both T-Mobile and Sprint, placing it above AT&T’s 93.2 million customers. The New T-Mobile would still fall behind Verizon, which holds 116.3 million customers.
Yet the reduction from four to three national carriers is likely a high enough regulatory hurdle that makes the chances of T-Mobile-Sprint deal slim, Chris Sagers, professor at Cleveland State University, told Bloomberg Law.
The merger may be viewed through an even more critical lens under the current DOJ investigation into AT&T’s and Verizon’s alleged wireless collusion claims, Schaeffer said.
The agency is investigating claims that AT&T and Verizon, along with a telecommunications standards organization, colluded to inhibit a technology that allows customers to switch network providers, essentially forcing them to stay with their current provider or buy a new phone. The Obama administration investigated similar collusion claims in 2016 but took no action.
The DOJ “may be concerned that the combined company will no longer be a disrupter and will prefer to follow AT&T’s and Verizon’s lead,” Schaeffer said.
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