T-Mobile's proposed $26.5 billion merger with Sprint just cleared its first legal hurdle, as Federal Communications Commission chair Ajit Pai says he will recommend that the agency approve the deal. The FCC will most likely follow his lead, but the deal still needs approval from the Justice Department, where antitrust enforcement staffers have expressed concerns, Bloomberg reports.
In an announcement, Pai said Monday that the two companies agreed to expand their rural coverage if the merger is approved, by building a 5G wireless network that will cover 97 percent of the US population within three years and 99 percent of the country within six years. Pai says the new network will cover 90 percent of rural residents within six years. The companies also agreed to spin off Boost Mobile, the prepaid phone service owned by Sprint. The merged firm would still own T-Mobile's MetroPCS prepaid service and Sprint-branded prepaid service.
"It’s also important that the companies would suffer serious consequences if they fail to follow through on their commitments to the FCC," Pai said. "These consequences, which could include total payments to the US Treasury of billions of dollars, create a powerful incentive for the companies to meet their commitments on time."
Critics of the deal aren't satisfied with the promises. They worry that a combined T-Mobile and Sprint would reduce the number of national cellular services to three from four, leaving less competition for customers.
"Does anyone really believe that this FCC, which has asked nothing of the big mobile companies for over two years, will require the companies to abide by these commitments?" former FCC lawyer Gigi Sohn said in a statement. She said the promise to spin off Boost doesn’t mitigate evidence suggesting cellular service prices will rise if the deal is completed.
The DOJ might agree. According to Bloomberg, antitrust regulators aren’t convinced that the concessions touted by Pai will resolve their concerns. DOJ antitrust chief Makan Delrahim generally has favored structural changes, such as spinoffs, as opposed to behavioral promises to resolve antitrust concerns. Spinning off Boost might not be enough to satisfy him.
The two companies announced the merger agreement in April 2018, but they’ve been courting for much longer. In 2014, the FCC shot down Sprint’s attempt to acquire T-Mobile. The two companies began negotiating a new tie-up in 2017 following Pai's appointment as FCC chair, but had trouble reaching an agreement. The plan that emerged last year, if approved, will give T-Mobile parent company Deutsche Telekom a 42 percent share of the new company, and the Japanese conglomerate SoftBank, which acquired Sprint in 2013, would own 27 percent. The remaining 31 percent would be held by the public. T-Mobile CEO John Legere would lead the new company.
The merger is now finding a more friendly audience in Washington than it did in 2014. Earlier this year seven congressional Democrats, including Rep. Anna Eshoo, the Democrat from California who has frequently sparred with telcos over net neutrality, and six Republicans sent a letter to the FCC and the Justice Department supporting the merger, arguing the combined company would be able to deploy 5G more quickly than the two companies could independently. T-Mobile also hired former FCC commissioner Mignon Clyburn, a Democrat, to advise the company on the deal.
The Trump administration has an inconsistent track record on mergers. In a surprise move, the FCC blocked Sinclair Broadcast Group's $3.9 billion merger with fellow television broadcasting company Tribune Media last year, saying Sinclair had misled the agency about its efforts to sell some of its television stations. The DOJ moved to block AT&T's $85 billion billion acquisition of Time Warner, though a federal judge ultimately approved the transaction. But regulators allowed Disney to acquire much of Fox's film and entertainment assets for $71 billion.