May 21, 2019

Fate of T-Mobile-Sprint deal rests with DoJ

Illustration: Rebecca Zisser/Axios

A split may be forming between federal regulators on whether to approve T-Mobile's $26.5 billion purchase of Sprint.

Why it matters: Despite a host of concessions offered by the companies that won over FCC Chairman Ajit Pai, the fate of the deal hinges on the competition questions that reportedly continue to dog the deal at the DOJ.

Details: In order to get the deal approved: T-Mobile has pledged not to raise prices for three years after the merger, cover 85% of rural Americans with its 5G network within three years, and sell off Sprint's Boost Mobile prepaid wireless service.

  • T-Mobile has also argued that its deal will help the U.S. compete with China, appealing to the Trump administration's American First platform and the FCC's 5G FAST plan.
  • The other side: Critics of the deal say moving from four national carriers to three will raise prices for consumers and result in job loss, no matter what the companies promise. Critics are also skeptical of T-Mobile's pledge to build 5G in rural areas.

Catch up quick: On Monday morning, it seemed that the package of conditions had worked: FCC Chairman Ajit Pai said that the deal was in the "public interest" and that he would recommend that his four fellow commissioners approve it.

  • Less than an hour later, Republican Commissioner Brendan Carr said he agreed and would support the deal.
  • That left T-Mobile only one vote shy of approval — and the two stocks soared.
  • A senior FCC official said that the divestiture of Boost Mobile would address concerns about the deal's affect on competition, which the official said were focused on the low-cost market.

Yes, but: Then came a Monday afternoon Bloomberg report that the Department of Justice was leaning towards killing the merger due to concerns that consolidation would hurt competition.

  • Both stocks ended the day below the high that followed Pai's announcement.

How it works: The DOJ's antitrust division and FCC use different legal standards to gauge competitive effects of mergers.

  • At the DOJ, deals are approved if they won't hurt competition, which is usually determined by potential impact on consumer prices.
  • At the FCC, deals are approved based on whether they are in the public interest — a squishier standard that in recent years has been used to encourage wider deployment of broadband by merging companies.

The intrigue: Discord between the FCC and DOJ is unusual, as the agencies usually collaborate and share information during merger reviews. In past telecom deals involving reviews by both the FCC and DOJ, the agencies often announce their decisions in quick succession.

  • For example, when Charter Communications, Time Warner Cable and Bright House Networks got the green light to merge 3 years ago, the DOJ and FCC announced in tandem their intent to approve the deal, with conditions. The full FCC voted to approve the decision about 10 days later.
  • In 2015, the FCC and DOJ on the same day announced approval for AT&T’s takeover of DirecTV. (The DOJ said it wouldn’t challenge it, and the FCC chairman circulated a conditional approval order to the other commissioners for a vote.)
  • They also work together when killing a deal. The agencies announced their reservations with the Comcast-Time Warner Cable deal — which the companies later dropped — at the same time in 2015.

Flashback: If the DOJ does end up scuttling the deal, it wouldn't the first time for the agency to take issue with a major merger involving T-Mobile.

Be smart: The FCC's approval means little if the DOJ decides to challenge the T-Mobile-Sprint deal. If the DOJ sues to block the merger, it could go to court — or the two companies could give up on their plans. State attorneys general are also still reviewing the deal.

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