United States Federal Communications Commission Chairman Ajit Pai this week gave the green light to a merger between T-Mobile and Sprint, currently the third- and fourth-largest mobile carriers respectively. The nation’s top telecom regulator agreed to the US$26 billion merger, but with some conditions — the most notable being that Sprint would sell off its Boost Mobile prepaid cellphone brand.
In addition, the combined firm would commit to deploying 5G network coverage to 97 percent of the country within three years, and to 99 percent of the country within six years.
“The companies have also taken steps to respond to concerns that have been raised about this transaction,” Pai said.
“Most importantly, in addition to their prior commitment not to raise prices for three years, T-Mobile and Sprint have decided to divest Boost Mobile,” he added. “This sale is designed to address potential competitive issues that have been identified in the prepaid wireless segment.”
DoJ May Oppose Merger
Despite the FCC approval, the merger is not a done deal. The U.S. Department of Justice reportedly objects to the terms of the merger and may oppose it.
The DoJ is far from satisfied with the concessions that were offered, according to a Bloomberg report, and is not convinced that enough has been done to resolve antitrust concerns.
T-Mobile had agreed to include the build-out requirements that would bring 5G deployment to rural communities, and provide a wireless home broadband solution that would be available as a wireline alternative. However, control of the wireless spectrum is at issue.
Typically the FCC and DoJ need to be in full agreement for such mergers to be approved, so some compromises likely will need to be ironed out. It is possible, but unlikely, that the DoJ could sue the companies to stop the mergers.
The DoJ sued AT&T to block its $85 billion bid to buy entertainment conglomerate Time Warner, but the department lost the case in court, and the deal closed last year.
“The DoJ and FCC have never disagreed on approving or denying a merger,” said Roger Entner, principal analyst at Recon Analytics.
“I would expect DoJ to approve with stronger conditions as the FCC conditions are extremely light,” he told TechNewsWorld.
The divestiture of Boost and Virgin is a non-issue, as they likely would have been sold off anyway, added Entner. “There is no point in having three prepaid brands, with Boost and Virgin floundering.”
Fewer Carriers but Improved Competition
Opponents of the merger have suggested that it could limit competition and lead to higher prices for mobile phone services. However, in its FCC filing, Sprint maintained that the merger was necessary for the company’s survival.
“This deal is needed by both T-Mobile and Sprint,” said telecommunications industry analyst Jeff Kagan.
The two companies together not only could survive, but also could challenge the industry leaders, AT&T and Verizon. Sprint and T-Mobile will complement each other and could make for a strong third player in the American mobile phone market, he told TechNewsWorld.
“T-Mobile is great at marketing, but has precious little spectrum; Sprint has lots of spectrum, but can’t market well,” Kagan pointed out.
“Separately, they will be weak competitors as the industry moves to 5G, but together they could be a strong third-place competitor after Verizon and AT&T,” he added.
More From Less
Reducing the number of carriers may not increase costs, as opponents fear.
“No one can be sure of the ‘right’ number of competitors in a market. There’s no objective answer, but most developed countries have two or three dominant wireless carriers,” said Jessica Melugin, associate director for the Competitive Enterprise Institute’s Center for Technology and Innovation.
“In general, it’s wise to view the marketplace not as a stagnant snapshot of what exists today, but in terms of a dynamic and fiercely competitive environment where if things don’t improve and innovate, they fail,” she told TechNewsWorld.
“Specifically, Sprint has struggled in recent years with profits, and it’s fair to say that without the merger, its future as a major carrier is not assured,” Melugin added.
“The real question is not between four major carriers and three; it’s between two internationally competitive 5G contenders or three, if Sprint and T-Mobile are allowed to combine spectrum and infrastructure resources,” she added. “Consumers will benefit from having a more stable and efficient competitor to Verizon and AT&T in the wireless market, as well as a third internationally competitive 5G contender.”
To Approve or Not Approve?
The fact that the FCC and DoJ aren’t in step isn’t entirely surprising. Just a month ago it seemed that even the FCC had concerns, and so far the companies have sought to meet the conditions necessary for the FCC’s approval.
“The word from regulators a few weeks ago said that the merger, as currently positioned, would not be approved,” said Kagan. “What that said to me was if T-Mobile and Sprint could learn what regulators needed and were willing to do that, then the merger could go through.”
So far, the terms have included the divesting of Boost Mobile and the commitment to building out the rural 5G network.
“This will satisfy some, but not all. There is the FCC, the DoJ and the states,” Kagan noted. “We are entering the final stretch now, and now is when we will see T-Mobile and Sprint do whatever they have to do in order to get this deal done. It will be done, but there are still a few hoops to jump through first.”
The 5G Play
T-Mobile and Sprint have pledged to roll out 5G service by utilizing a mid-band spectrum that could bring broadband to rural customers who thus far have been unable to get high-speed Internet. 5G thus could address the last-mile issues in rural communities where service over copper or fiber has been cost-prohibitive.
5G also could be the main reason this merger might end up getting approval. The DoJ in 2011 rejected AT&T’s bid to purchase T-Mobile, arguing that it would be bad for consumers. This time around, however, the DoJ may see benefits for consumers.
“If we were not moving into a new world of 5G, T-Mobile would be fine as they are. However, with 5G coming on strong, both T-Mobile and Sprint need to get together so they can be a powerhouse in marketing and spectrum,” said Kagan.
Still, there is a case to be made that the DoJ may fall back on its 2011 opinion, and the 5G commitment from a combined Sprint/T-Mobile may not be enough to sway it.
“The merger isn’t necessary for 5G; the rollout would be similarly fast,” Recon Analytics’ Entner pointed out.
“AT&T and Verizon would not sit on their hands, but they both are building out as quickly as technically possible,” he added. “T-Mobile could do everything it offers to do in 5G without Sprint — however, Sprint on the other hand would struggle.”
If this merger does go through, it is unlikely the telecommunications industry will see any future consolidation, suggested Entner. “This would probably be the last wireless merger in the U.S.”