DOJ Approves T-Mobile/Sprint; State Lawsuit Not Going Away

FCC Chairman Ajit Pai said he soon will circulate an order on the deal, “consistent with the Department’s filings,” for a vote by the rest of the commission. Pai said in May he would seek approval of an agreement that contained fewer concessions than the DOJ pact (see 1905200051).

New York AG Letitia James, leading the lawsuit, remains opposed. “We have serious concerns that cobbling together this new fourth mobile player, with the government picking winners and losers, will not address the merger’s harm,” James said. Dish “has never shown any inclination or ability to build a nationwide mobile network” and doesn’t have “the network to operate as an independent competitor, like Sprint does,” she said.

Connecticut AG William Tong said Dish is "simply not a viable or serious alternative for consumers, and this contrived agreement does nothing to ensure healthy competition in what will effectively be a three-player marketplace." In a conference call with reporters, James said the states' suit might have to be amended to reflect the consent decree.

Sprint closed up 7.4 percent to $7.99, about 65 cents shy of the takeover price. T-Mobile gained 5.4 percent to $84.25. When announced April 29, 2018, the companies said the total implied enterprise value was some $59 billion for Sprint.

Dish Chairman Charlie Ergen said its role in T-Mobile/Sprint -- acquiring Sprint's prepaid businesses and customers and 14 MHz of its spectrum and having access to the New T-Mobile network for seven years -- is "the fulfillment of more than two decades' worth of work and ... $21 billion in spectrum investments" aimed at becoming a carrier. The company he co-founded said the Sprint acquisitions tally roughly $5 billion -- $1.4 billion for the prepaid businesses and a $3.6 billion agreement to buy Sprint's nationwide 800 MHz wireless spectrum. It said the spectrum purchase is expected to close three years after the close of the prepaid business acquisition. Dish's Q2 call is Monday at 4:30 p.m. EDT, the satellite provider said Friday. The timing of the call, after the markets close, is unusual for Dish, which usually holds its calls at noon.

T-Mobile Excited

The consent decree “removes a huge hurdle for this merger to proceed,” said T-Mobile CEO John Legere on a quarterly call. Target synergies, profitability and long-term cash generation haven’t changed, he said. “While this process took longer than we had hoped, our goal was to ensure that the DOJ’s concerns were addressed,” he said. “We are continuing to work the process with the California PUC and continue to be willing to engage with state AGs, who have weighed in on both sides.” Legere said the deal should close by year's end.

Under the agreement, as expected (see 1907240062), Dish gets all of Sprint's prepaid business, with 9.3 million subscribers, and 14 MHz of 800 MHz spectrum from Sprint three years after the deal closes, with an option for T-Mobile to lease back spectrum for two years. The agreement doesn’t include any of the 2.5 GHz spectrum owned by Sprint, which is a big part of T-Mobile’s 5G plans.

T-Mobile agreed to provide a network for Dish for seven years and an option to take over leases on 20,000 cellsites that will be decommissioned, plus the title to more than 400 stores for five years. Dish agreed to negotiate in good faith a lease by T-Mobile of 600 MHz spectrum. Dish would get extensions on the buildout requirements for the spectrum it owns, though the extensions need FCC OK.

Dish committed to building 15,000 cellsites, covering 70 percent of the U.S. with 5G at a speed of 35 Mbps, and not to lease more than 35 percent of capacity from its AWS-4 and 600 MHz licenses to what will be the big three carriers. Dish won't sell those licenses for six years without DOJ and FCC approval. T-Mobile and Sprint also agreed to continue all of their mobile virtual network operator agreements.

FCC

The FCC didn’t say whether it will seek comment on the new proposal before a vote. Commissioner Geoffrey Starks tweeted that since the structure of the transaction has changed, it should. Commissioner Jessica Rosenworcel remains “skeptical that this combination is good.”

Commissioner Brendan Carr told us the FCC shouldn’t do anything that would mean slower “accelerated 5G” deployment. “The time to do that is now,” Carr said, noting his third child was due over the weekend and the pregnancy hadn’t started when the deal was announced last year. “The commitments secured by us at the FCC … were secure and made publicly available at the end of May,” he said. “You’ve had a two-month cycle where our docket has been open. Every decision maker at the FCC has been open and available to hearing from any stakeholder.” Today's "a real big win for U.S. leadership on 5G,” Carr said. “Up until today, it wasn’t clear which way the DOJ was going to go on the entire transaction.”

Don’t “underestimate the height of the final hurdle; the concessions to DISH were less robust than they could have been,” New Street’s Jonathan Chaplin told investors: “The companies will have to convince the court that DISH really is a viable new entrant with the starting position they have, when apparently an established veteran like Sprint couldn’t make a go of it. We think odds favor the companies, but by no means a slam dunk.”

AGs in five states endorsed the settlement -- Nebraska, Kansas, Ohio, Oklahoma and South Dakota; 14 other states are part of the state suit. Industry officials said DOJ had been trying to get one of the 14 to change sides.

Former opponent Incompas is now onboard. “The DOJ deal is both creative and competitive,” said CEO Chip Pickering: “With the adoption of eSIM technology as a merger condition, consumers get greater portability and flexibility to switch providers.” That's an alternative to actual SIM cards, needed to connect a phone to a carrier's cellular network.

Antitrust Strategy

Other critics remain opposed.

States' suit likely will prevail, emailed Georgetown University Law Center Institute for Public Representation's Andrew Schwartzman. “Consummation of this revised transaction has more obstacles than many observers seem to recognize,” he said: “Even though a majority of the FCC has signaled its approval, the Commission must still issue its decision. The expected dissents from the FCC minority will provide more ammunition for opponents.” A federal judge must approve the new consent decree, he said: “While that review has often been automatic in the past, this time the states and other opponents have already marshaled.”

Public Knowledge Policy Director Phillip Berenbroick said DOJ is right to worry about the wireless market going from four national carriers to three, but it's undertaking "a risky bet" with Dish rather than rejecting the deal. He said the behavioral conditions on T-Mobile could be ineffective, gamed or unenforced. He said the FCC should put the new proposed transaction out for public comment. Rural Wireless Association General Counsel Carri Bennet said DOJ "caved to political pressure," and consent decree conditions that apparently will be put on T-Mobile are insufficient, with potential fines inadequate and the three-year span covering Dish far too short.

"It's against basic business DNA" for T-Mobile to help Dish become an independent national carrier, said Consumer Reports Senior Policy Counsel George Slover. Berenbroick said Sprint has debt woes, but Dish would face tens of billions of dollars in costs to set up it network, and is just as over-leveraged as Sprint but with a smaller customer base. Slover said the issue isn't whether Sprint on its own can rival AT&T but whether it can at least make other companies react to it, "and Sprint is perfectly capable of doing that."

DOJ apparently tried to get the 14 states on board with its consent decree, Bennet said in an interview. She said it's not clear if parties in that suit will be able to intervene in the consent decree approval. Slover noted to us that the state AGs' case is under federal antitrust laws and they don't need DOJ involved. The states will "have to take into account the new contours" of the side deal but it shouldn't hamper their case, he said. Berenbroick said in an interview the AGs still have a strong case for arguing the proposed remedy remains speculative. He said the DOJ consent decree could be "a baseline" for the states, putting them in a strong position to continue to try to block the deal or insist on remedies to fix the remaining outstanding harms.

DOJ’s approach is “needlessly convoluted,” New America’s Open Technology Institute said. “DOJ does not need to bend over backwards to fix a bad merger. It can simply block the deal.” OTI also called the plan “half-baked.” The states should continue their lawsuit, PK said.

Deal Defenders

The transaction has longtime defenders. Some on Capitol Hill were also pleased.

Free State Foundation President Randolph May said the new conditions are “likely not necessary to protect consumers” and “may have the effect of reducing some of the benefits from the merger.”

Others disagreed.

T-Mobile/Sprint is too big to fix through divestitures or other remedies, the American Antitrust Institute said. Dish "will have the near-impossible task of hitting the ground running" to reintroduce competition lost from Sprint's departure, it said. President Diana Moss said DOJ has "slip[ped] significantly in its willingness to be a strong enforcer of the U.S. antitrust laws."

At around 11 p.m. EDT Thursday, DOJ emailed reporters it would announce a merger enforcement action 12 hours later. Early Friday morning we registered to attend via a few methods. However, we were denied entry to DOJ and told we weren't on the list of registrants. That apparently was an oversight, and the department didn't make a transcript available when we asked.

Hill Reacts

Hill reaction to the settlement divided along party lines. At least three Democratic senators vying for their party's 2020 presidential nomination were opposed. Republicans were more supportive.

T-Mobile/Sprint “will cost thousands of jobs, reduce wages, and further reduce competition in a sector that badly needs it,” tweeted Sen. Elizabeth Warren of Massachusetts, one of the three 2020 Democratic presidential hopefuls to oppose DOJ's decision by Friday afternoon. “We need antitrust regulators with the courage to stand up to monopolies.”

The presence of four national wireless carriers “has led to lower prices, better service, and more innovation,” which is why “when this merger was first reported, I raised serious antitrust concerns,” said Senate Judiciary Antitrust Subcommittee ranking member and 2020 Democratic contender Amy Klobuchar of Minnesota, in a statement. T-Mobile/Sprint looked like a bad deal” before “and it looks like a bad deal today, despite the parties' promises and this proposed consent decree.”

“It's alarming” DOJ approved “based on nothing more than a host of grandiose promises from the parties that will be difficult to verify, let alone enforce,” said 2020 Democratic hopeful Sen. Cory Booker, D-N.J. “We have seen such promises made and broken before.” Booker remains “skeptical this merger was necessary to deliver its supposed benefits to consumers in rural communities.”

DOJ's decision “reduces the number of nationwide mobile carriers from four to three, with the hope of one day creating a new fourth competitor,” said Sen. Ed Markey, D-Mass. “Unfortunately, the best way to ensure competition would have been for the Justice Department to simply block the merger so we would still have four competitors today. Instead, they chose a more complicated and uncertain path.”

Senate Judiciary Antitrust Chairman Mike Lee, R-Utah, had a mixed reaction. “I’m hopeful that the transaction will better position the merged firm to compete with Verizon and AT&T in the future, particularly as these carriers seek to roll out nationwide 5G,” he said. “I have concerns whenever government joins hands with industry to cobble together a would-be competitor, particularly one who so stridently opposed the merger earlier this year. Time will tell whether this market intervention was sound, but it will no doubt invite similar gamesmanship in future antitrust reviews.”

Other Republicans were more supportive. The decision “is great news for Colorado, which could now be home to the nation’s 4th major wireless carrier” since Dish is based there, tweeted Sen. Cory Gardner. “I’m hopeful those who were previously opposed to this effort will recognize the benefits.” It's “a positive step forward,” said Sen. Jerry Moran of Kansas. T-Mobile and Sprint “have made publicly clear that they plan to utilize Overland Park and the surrounding Kansas City communities.”