A merger between T-Mobile and Sprint, the nation’s third- and fourth-largest wireless carriers, entered uncertain legal territory this week, after the two federal agencies reviewing the $ 26 billion deal appeared to split in their thinking about the transaction.
The two companies’ plans received early blessings on Monday from Federal Communications Commission Chairman Ajit Pai, who said the telecom tie-up would benefit consumers by speeding up the nationwide deployment of new, ultrafast mobile broadband service. The FCC’s two other Republicans backed the merger, too, positioning it to win the FCC’s final approval in the coming weeks.
But the other agency reviewing the deal — the Justice Department — still appears to harbor reservations about the combination of T-Mobile and Sprint, according to a person familiar with the Justice Department’s investigation into the proposed merger.
Officials in the antitrust division, led by Makan Delrahim, remain skeptical that allowing the number of top wireless carriers to drop from four to three will help consumers, who now benefit from the pressure these rivals exert on each other to improve their prices and service offerings, the person said. The source asked not to be identified because the proceedings are private.
A Justice Department spokesman declined to comment on the investigation. But Jeremy Edwards, a spokesman at the agency, noted that the Justice Department “has a different statutory mandate than the FCC.”
Even if the FCC approves the merger, the Justice Department still could try to block the deal in court on grounds it threatens competition. Sprint and T-Mobile declined to comment.
In his comments, Pai stressed that the deal would benefit consumers. “Two of the FCC’s top priorities are closing the digital divide in rural America and advancing United States leadership in 5G, the next generation of wireless connectivity,” he said in a statement. “The commitments made today by T-Mobile and Sprint would substantially advance each of these critical objectives.”
Federal regulators began considering the merger between T-Mobile, operated by Germany’s Deutsche Telekom, and Sprint, run by the Japanese conglomerate SoftBank, after the companies announced their plans in April 2018. For years, the wireless giants had flirted with such a combination, but political head winds — including threats from Washington that it would block such a deal — forced them to consistently abandon their plans.
This time, executives at Sprint and T-Mobile say a merger would be the only way for them to challenge the massive corporate footprints of their larger rivals, AT&T and Verizon, at a moment when those wireless giants are preparing to deploy the next generation of mobile service. But critics, including public-interest advocates and even some telecom rivals, have blasted the deal, arguing it would further consolidate an industry that lacks choices and result in high prices for consumers.
Joining them in opposition are prominent congressional Democrats and 2020 presidential contenders, such as Sens. Cory Booker (N.J.), Amy Klobuchar (Minn.) and Elizabeth Warren (Mass.), who together sounded off against the deal in a letter to regulators earlier this year.
In an attempt to ameliorate critics, Sprint and T-Mobile announced on Monday a series of concessions. They include a commitment to build out 5G wireless to 97 percent of the country in three years, including much of rural America, while offering “same or better rate plans at the same or better prices” for the next three years. They also pledged to divest Sprint’s prepaid phone business, called Boost Mobile, to a third party following the deal’s approval.
“The New T-Mobile will be a disruptive rival with the resources to go toe-to-toe with established behemoths to drive competition and innovation that benefits everyone, everywhere,” T-Mobile CEO John Legere wrote in a blog post.
Those commitments helped the deal win Republicans at the FCC. Along with Pai, Republican Commissioner Brendan Carr said the tie-up as proposed would “help close the digital divide.” Fellow GOP Commissioner Michael O’Rielly, for his part, said he is “inclined to support the T-Mobile/Sprint proposed merger,” noting that its concessions may not be necessary.
Pai, the agency’s chairman, warned that the companies would face “suffer serious consequences” if they broke their promises, including “payments to the U.S. Treasury of billions of dollars.” But Democratic Commissioner Jessica Rosenworcel appeared unconvinced, tweeting Monday she has “serious doubts” about further consolidation in the wireless industry.
Experts said this week they could not remember a time when the FCC gave a telecom merger a green light, yet Justice sought to block it in court. But the department’s top antitrust officials have not shied away from challenging other instances of industry consolidation in recent months: Delrahim last year sought to block AT&T from buying the content giant Time Warner, though the Department of Justice ultimately lost the case and the companies completed the deal. Bloomberg first reported details of the agency’s doubts about the combination of Sprint and T-Mobile.
“For Justice, [going from] four to three is this massive problem,” said Andrew Jay Schwartzman, a top lawyer at the Communications and Technology Law Clinic at Georgetown’s Institute for Public Representation.
The FCC can look at the deal and say “look at this race to 5G,” he said. “That doesn’t matter to the Department of Justice. They’re looking at competition. Broadband deployment reaching a high percentage of the country is not a competition issue.”
If the government does opt to challenge Sprint and T-Mobile in court, the DOJ may find itself warring against the FCC. A judge must decide “how much weight is put on what appears to be the majority of the FCC’s opinion, which is clearly not based on competition policy,” said Gene Kimmelman, a former DOJ antitrust official and president of Public Knowledge. The Washington-based consumer group has opposed the merger.
Analysts said the Justice Department’s skepticism could also fuel a challenge led by state attorneys general. Even if the DOJ doesn’t ultimately sue, the odds are growing that “state attorneys general for the blue states will sue in Federal court to try to block the transaction,” warned Craig Moffett, a senior analyst at the firm MoffettNathanson, in a note to investors this week.
“The deal looks like it has crossed one important hurdle (the FCC),” he wrote. “But that was neither the highest nor the most important hurdle.”