T-Mobile US Inc suffered a significant setback in its bid for regulatory approval of its takeover of Sprint Corp after failing to win over the US Justice Department with a remedy package, putting pressure on the companies to offer more concessions.
The wireless carriers could try to sell additional assets to resolve the department’s concerns that the deal would harm competition. The question is whether there’s anything the companies can propose, like selling airwaves or another business unit, that will sway the department’s antitrust boss, Makan Delrahim.
“I don’t see how any concessions short of somehow helping to set up a new fourth competitor could make this deal palatable to DoJ,” said Gigi Sohn, an opponent of the merger and a former aide to a Democratic chairman of the Federal Communications Commission.
T-Mobile and Sprint cleared a key hurdle on Monday when Federal Communications Commission Chairman Ajit Pai said he would recommend approval of the $26.5bn merger after the companies offered a package of concessions, including spinning off Sprint’s pre-paid brand, Boost, to win regulators’ blessing.
The Justice Department, however, remains unsatisfied and is concerned the remedies don’t go far enough to resolve concerns that the combination of the No 3 and No 4 wireless carriers would hurt competition, according to a person familiar with the matter. Delrahim, the head of Justice’s antitrust division, is leaning against the merger, said the person, who asked not to be named because the review is confidential.
The antitrust division may be worried that the companies’ promises to speed deployment of the next-generation of wireless technology known as 5G doesn’t outweigh harm to consumers from combining two national carriers, said Amanda Wait, an antitrust lawyer at Norton Rose Fulbright in Washington.
“Proving those kinds of consumer benefits is a really uphill battle,” she said. “You can see the DoJ and the FCC going different ways on this because they have different standards of review.”
Whether the companies can offer concessions that will satisfy the Justice Department depends on the nature of the antitrust division’s concerns, said Blair Levin, an analyst with New Street Research and a former FCC chief of staff. If the division’s concerns are limited to competition in the market for pre-paid phone plans, where wireless customers pay as they go rather than taking out subscriptions, that problem is fixable, Levin said. But if the Justice Department is concerned about a deal that would leave just three national players, that presents a bigger challenge.
“It is tough to thread the needle of a condition that the government would see as solving the problem and T-Mobile wouldn’t see as too expensive,” Levin said.
After a roller coaster day with news that whipsawed shares of both companies, investors ultimately cheered the news of Pai’s approval. Sprint shares soared 19% to $7.34 while T-Mobile rose 3.9% to $78.29. The spread between T-Mobile’s offer price for Sprint and Sprint’s share price — an indication of the deal’s risk — also dropped sharply, showing investors are more optimistic it will close.
Opposition to the deal by the Justice Department would mark a rare break with the FCC. The two agencies work side by side on merger reviews and typically emerge on the same page about whether to approve deals.
With Pai’s support, the deal’s fate rests with Delrahim. While the FCC considers whether a merger is in the public interest, the Justice Department’s considers a different standard: whether a deal hurts competition and would raise prices for consumers.
If the Justice Department decides to challenge the merger, the government would have to persuade a federal judge to block it. The FCC approval makes that task more difficult, since the companies would be able to show the regulator determined the deal is in the public interest, said Andrew Jay Schwartzman at Georgetown University’s Institute for Public Representation.
More than a dozen states attorneys general are also investigating the proposed merger and have raised concerns about harm to consumers. The states have signalled they may sue to block the deal even if the Justice Department clears it.
Delrahim shocked many antitrust experts when he sued in 2017 to block AT&T Inc’s planned takeover of Time Warner Inc That deal was expected to win antitrust approval because it combined companies in different parts of a supply chain rather than uniting direct competitors.
While those deals are typically approved with conditions on how companies operate, Delrahim broke from the past and demanded asset sales and later sued the companies to block the deal. He lost on appeal.
“Makan Delrahim has proven to be unpredictable, so we don’t assume anything regarding his ultimate decision,” said Paul Gallant, a Washington-based analyst with Cowen & Co.
Maryland Attorney General Brian Frosh said Monday on the sidelines of a conference in Washington that he had to learn more about the details of T-Mobile and Sprint’s proposed fixes but said he is “sceptical” they would address his objections to the consolidation the deal would entail.
“It’s hard to say that our concerns could be alleviated by that kind of tinkering,” Frosh said. “It means that consumers are going to suffer in terms of price, in terms of quality, in terms of opportunities.”
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