Sprint-T-Mobile Tie-Up Would Reveal FCC’s Market Stance

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By Tara Jeffries (Bloomberg BNA)

A marriage of Sprint Corp. with T-Mobile US Inc. would test whether the Federal Communications Commission under GOP chairman Ajit Pai is prepared to let the top competitive tier of the U.S. wireless market shrink from four to three players.

The two carriers may announce a deal in the next several weeks, according to Bloomberg News. But even if the FCC decides to bless the prospective combination, it’s likely to insist on conditions, such as a divestiture of spectrum licenses, telecom industry analysts told Bloomberg Law.

T-Mobile and Sprint are the third- and fourth-largest U.S. wireless carriers, respectively, behind Verizon Communications Inc. and AT&T Inc. The market share of a combined Sprint and T-Mobile would compare to the size of AT&T or Verizon, according to Bloomberg Intelligence data.

Winnowing the major wireless players from four to three would be a significant change that critics of the current FCC say would raise prices for subscribers.

“Going down from four to three—that’s a pretty big jump,” former Democratic FCC Commissioner Michael Copps told Bloomberg Law. “It’s a slippery slope to more consolidation and less competition.” The FCC under Pai is likely to approve the merger, said Copps, now a special adviser to public-interest group Common Cause’s Media and Democracy Reform Initiative.

The FCC and the Justice Department, which would conduct an antitrust review of such a deal, would use different methods. The FCC would decide whether it thinks the deal is in the public interest, a broad standard that gives the agency a lot of leeway in weighing mergers. The Justice Department evaluates deals using a more rigid mathematical formula.

Despite the Trump administration’s deregulatory bent, either or both agencies may reject a Sprint-T-Mobile deal. Neither the FCC nor the Justice Department, which would review such a deal on antitrust grounds, is likely to sign off on the deal if the other agency wanted to block it.

“This deal has much better prospects under a Republican administration than it would have had under a Democratic administration, but that is still a far cry from saying that the deal is, can be called anything like highly likely to be approved,” Craig Moffett, founding partner at MoffettNathanson LLC, told Bloomberg Law. “It’s very difficult to say that this deal has significantly better than 50-50 odds.”

Sprint and T-Mobile spokespersons did not immediately respond to Bloomberg Law requests for comment. Spokesmen for the FCC and the Justice Department’s Antitrust Division declined to comment.

From Four to Three?

The Justice Department sued to block AT&T’s bid for T-Mobile in 2011. Sprint may argue to regulators that they should look at its deal through a different lens, as one that would foster competition by creating a larger carrier that could compete with more clout against AT&T and Verizon.

The carriers could argue that three companies with more robust networks could serve telecom subscribers better than four, and a combined Sprint-T-Mobile could invest more in network improvements to keep up with competitors. Sprint and T-Mobile could also argue they’d be better positioned to build out expensive 5G networks if they join forces.

“Can Sprint, can T-Mobile, last that long, and are they willing and able to spend the money they would need to to be real players in a greatly expanded 5G market?” Larry Downes, project director at Georgetown University’s Center for Business and Public Policy, told Bloomberg Law.

The FCC’s five commissioners have stayed mum, but the prospective merger loomed over the agency’s recent report on the mobile wireless market, the first since 2009 to deem it effectively competitive. Pai told reporters in September he couldn’t comment on “rumors.” GOP Commissioner Michael O’Rielly said he doesn’t dictate a “magical number” of carriers. “The previous commission seemed to have this viewpoint that it had to be four, and I don’t have a preconceived notion,” O’Rielly said.

Democratic Commissioner Jessica Rosenworcel said while FCC “should not prejudge what is not yet before us, I think this agency sticks its collective head in the sand by issuing this report and implying, ‘Move along, there is nothing to see here.’”

Shedding Licenses

Sprint has licenses to spectrum on different parts of the airwaves than T-Mobile, but the FCC may condition its approval of a deal on the sale of some licenses.

A combined carrier “might be required to get rid of some stuff,” said Downes, who thinks the FCC is likely to approve the deal.

Another possible FCC approval condition could help assuage fears about shrinking the pool of competitors in the wireless space. Sprint and T-Mobile could strike a network-sharing deal with a company such as DISH Network Corp., which would position DISH or another company as a new wireless competitor, analysts at New Street Research, a debt and equity research company, wrote in a recent note.

The FCC could sidestep a straightforward rejection of the deal, but still effectively stall it, by sending it to an administrative law judge within the agency to review.

Whatever the outcome of a potential deal, regulators would be mindful of how it would alter the competitive landscape.

“It’s not impossible,” Moffett said. But “it would very clearly be precedent-setting to approve a horizontal merger under these conditions.”

To contact the reporter on this story: Tara Jeffries in Washington at tjeffries@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com (Bloomberg BNA); Elizabeth Fournier at efournier5@bloomberg.net (Bloomberg); Crayton Harrison at tharrison5@bloomberg.net (Bloomberg)

[With assistance from Alex Sherman (Bloomberg) and Scott Moritz (Bloomberg)]

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