T-Mobile/Sprint Seen as Key Next Test of Trump Deal Policy

In 2011, the FCC essentially killed AT&T/T-Mobile, the initial deal that would have left three national wireless carriers instead of the current four. In 2014, amid pressure from then-FCC Chairman Tom Wheeler, Sprint dropped its pursuit of T-Mobile (see 1408070044). Industry observers have speculated a Republican FCC would allow shrinking to three national wireless carriers (see 1612090053). Monday, Sprint closed down 13.7 percent to $5.61, T-Mobile fell 6.22 percent to $60.51. Sprint said Monday it will release Q4 results Wednesday and hold a call with analysts.

“In a network industry … it’s pretty easy to see why the density of the network really does make a big difference,” said George Hay, antitrust expert and professor at Cornell Law School. T-Mobile and Sprint could argue the deal will allow them to provide better coverage for consumers and better compete against AT&T and Verizon, Hay said.

Three Rivals

“Any merger that will leave only three rivals in the market, with incentives to coordinate, rather than compete, will get serious scrutiny under any administration,” said Diana Moss, president of the American Antitrust Institute. “Late Obama-era enforcers successfully blocked or forced the abandonment of several deals that have similar profiles.” Moss cited Halliburton/Baker Hughes, Sysco/USFoods, Staples/Office Depot and Anthem/Cigna. Expect "no different from the current set of enforcers,” she said. “Any efficiencies claims would be heavy lift. Both companies earlier in 2018 announced they were ready, able, and already engaged in the 5G transition. That means they could do 5G on their own. ... And T-Mobile continues to be a disruptive player.”

Many of DOJ staffers who worked on AT&T/T-Mobile remain, said Andrew Schwartzman, a senior counselor at Georgetown Law's Institute for Public Representation. “They justifiably consider that to have been a very successful intervention.” Staff “will start from the premise that having four major players is very important,” he said. “The parties will have to make their case to DOJ without getting significant public support.”

BTIG analyst Walter Piecyk pegged odds at less than 40 percent the deal will be completed, on CNBC Monday. T-Mobile and Sprint emphasized Sunday the deal would create jobs and will help the U.S. compete in 5G against China, Piecyk said. “Does that really matter to the DOJ?” he asked. “DOJ is looking at this thing in terms of competition.” Sprint’s future is in question, he said: “T-Mobile can live without Sprint, can Sprint live without T-Mobile?”

New Street Research said Monday the deal is more likely to be rejected than approved. The 2011 DOJ analysis of AT&T/T-Mobile is the “institutional starting point and would carry weight with the DOJ staff” and “suggests that if the staff were the sole decision maker, the odds would favor rejection,” New Street emailed investors. “When one adds in the predilections of the current leadership of the DOJ and the FCC, the odds move to slightly favor acceptance. … When one adds in the risk of a state attorney general lawsuit and a President Trump intervention, the odds are reduced again to slightly below even.”

The deal would push the combined company into the second spot among U.S. carriers ranked by total subscribers and revenue, with a dominant position in U.S. prepaid, with a 54 percent share, S&P said. It would also “trigger regulatory scrutiny” as it pushes the U.S. wireless industry into the “Highly Concentrated” red zone based on the Herfindahl-Hirschman index, S&P said.

Backlash

Backlash is building. Industry officials said T-Mobile has been hiring lobbyists to put a positive spin on the deal. T-Mobile CEO John Legere and Sprint CEO Marcelo Claure are expected to make the trip to Washington this week to answer policymakers questions.

“Consumers would see no benefit to a marketplace where Verizon, AT&T, and T-Mobile call all of the shots,” said former FCC Commissioner Michael Copps, now at Common Cause. “Instead, consumers can expect to pay higher prices and see fewer competitive options.”

“When the FCC and DOJ analyze the Sprint and T-Mobile merger filing, we ask them to protect Latinos and low-income consumers so that they are not disproportionately harmed by increased prices associated with market consolidation,” said Alex Nogales, president of the National Hispanic Media Coalition. “If the national wireless market shrinks from essentially four companies to three, history suggests the negative impact on competition would mean higher prices for many people,” Consumers Union said.

There shouldn’t be an “iron-clad” rule that four carriers are needed for competition, emailed Free State Foundation President Randolph May. “That is the wrong way to analyze the market, especially when mobile broadband increasingly is not a distinct market but rather part of a larger dynamic broadband market and when a merger of the third and fourth carriers in terms of the number of subscribers likely would make a more formidable competitor to the two largest wireless providers.”

“In my former role as an advisor to the White House on these matters, the key question was always would America be better off with a merger or without,” said former NTIA Administrator John Kneuer. “America will be manifestly better off with this combination because I think it’ll spur greater competition.”