The executives who masterminded the second attempt to combine Sprint and T-Mobile are confident the benefits to consumers and the labor market outweigh any drawbacks.
The pivotal question now is whether they can convince U.S. regulators, including the antitrust division of the U.S. Justice Department, which has gone to court to block AT&T’s proposed takeover of Time Warner Cable.
“While we believe the merger has an improved chance of regulatory approval given management’s outlook for job creation, there are likely to remain concerns about customer concentration and the impact on overall consumer pricing,” Jim Breen, an analyst with William Blair, said in a note to clients on Monday.
Indeed, Trump’s administration has taken a harder stance on anti-competitive concerns, by some measures, than that of his predecessor, and the president himself has focused on creating and maintaining jobs, regularly citing a low unemployment rate. There’s also scrutiny from some Congressional Democrats, who want the House Energy & Commerce committee to hold a hearing on the deal.
The Trump-controlled Federal Communications Commission “has pointed to competition in the communications market as justification for many of its efforts to eliminate consumer protections such as net neutrality,” panel Democrats Frank Pallone Jr. and Mike Doyle wrote in a letter to Chairman Greg Walden, an Oregon Republican.
“While we do not agree that this rationale has ever made sense, certainly this committee has an obligation to take a fresh look at the FCC’s actions in light of this — and other recent — proposed communications mergers,” they wrote.,
Indeed, one potential stumbling block is that T-Mobile’s agreement to buy Sprint for $26.5 billion would take the number of legacy cell phone companies from four to three, although the would-be partners note that both Comcast and Altice are now strong contenders as well. Further, the Federal Communications Commission deemed the U.S. mobile market competitive last fall for the first time since 2009.
Advantages from the transaction, proponents say, include creating a larger payroll than Bellevue, Wash.-based T-Mobile and Overland Park, Kan.-based Sprint have separately as well as more rapidly developing and deploying a 5G network, with higher-powered transmission capabilities.
Maintaining the U.S. edge in developing such networks was among the reasons that the Trump administration blocked Singapore-based Broadcom’s proposed purchase of telecommunications equipment-maker Qualcomm earlier this year.
“I’ve been saying for years that all content is going to the Internet and the Internet is going mobile,” T-Mobile CEO John Legere told investors on a conference call Sunday. “Wireless, broadband, and video have converged across traditional lines, and the combined company will actively compete and disrupt traditional thinking in each part of the new world.”
So-called 5G services, which have about 100 times existing capacity and 100 times faster speed, have the potential to change consumers’ lives even more than the shift from black-and-white to color televisions, said Sprint CEO Marcelo Claure.
“5G will unleash new ideas and uses in areas like the Internet of Things, smart cities, smart agriculture, mobile virtual reality and augmented reality, mobile artificial intelligence, consumer wearables, and things we can’t even imagine yet,” he said.
Such possibilities might sway the FCC in its assessment of the merger, but not the Justice Department — which focuses on anti-competitive issues, largely assessed through the prism of price.
While William Blair’s Breen said the presence of three strong companies, Verizon, AT&T, and the new T-Mobile, would likely prevent any major price increases, he noted that regulators are likely to ask for commitments on that point.
Such behavioral agreements were common requirements from former President Barack Obama’s Justice Department, but Makan Delrahim, the assistant attorney general for the antitrust division, has said they’re difficult to enforce and he prefers “structural remedies” like mandated asset sales instead.
The likelihood of such a requirement — and concerns about regulatory approval overall — dragged Sprint shares down 14 percent to $5.61 on Monday, significantly less than the deal price of $6.62 a share. T-Mobile fell 6.2 percent to $60.51.
While a previous plan to combine Sprint and T-Mobile collapsed in mid-2014, amid reports of opposition from Obama-era regulators, that shouldn’t be the case this time, Claure and Legere said.
“This is one of those few mergers that makes all the merits for approval,” Claure added. “It’s one of those few situations where we’re going to go build an amazing network that is going to be good for the economy and good for consumers. We made a commitment that we’re going to do it at lower prices and we’re going to create jobs.”
