took another step toward getting their tortured $26 billion merger approved after the chairman of the Federal Communications Commissioner said that he would support the deal.
While T-Mobile and Sprint skillfully navigated the FCC, the two companies are still not yet out of the woods.
The assent by FCC chief Ajit Pai wasn’t surprising. T-Mobile and Sprint stopped the deal clock earlier in the year to submit plans for a 5G rollout, which included heavy investments into wireless and rural broadband. Pai acknowledged that both those areas were goals of the FCC. Sprint also agreed to sell Sprint Boost, a prepaid cellphone service.
Pai must now seek agreement from the rest of the agency’s five commissioners. Stocks of nearly all the major wireless players rose, led by T-Mobile (TMUS) and Sprint (S).
And as the deal drags on and the two companies offer more concessions, it is making the long-term investment case after approval more and more difficult. Sprint has been struggling, and the longer this takes the worse it will become. Second, the biggest hurdle still lies ahead: antitrust.
Pai all but ignored the antitrust implications of going from four companies to three—an easy call in most other administrations, even those that have been pretty laissez faire. If the FCC goes along with Pai, the Justice Department’s antitrust division remains the final hurdle to approval.
But T-Mobile and Sprint pose an unusual challenge for the Justice Department, which fought and lost a war over
(T) acquisition of Time Warner. That was a vertical merger, and thus far less controversial from an antitrust perspective than a four-to-three horizontal deal, which by definition reduces competition.
Approving a T-Mobile and Sprint deal would take the antitrust division into a policy swamp rife with uncertainties and inconsistencies. First, accepting the clear reduction of competition would subordinate antitrust policy to industrial policy goals–like 5G. This past week, the Trump administration blacklisted Huawei Technologies, the big Chinese telecom vendor, and U.S. suppliers from Intel (INTC) to
to Alphabet (GOOGL) have already suspended sales.
Meanwhile the Committee on Foreign Investment in the United States has been aggressively targeting Chinese companies and investors with deals in the U.S. Will the Justice Department resist pro-5G pressures now coming from across the administration? That looks less and less likely.
Second, this “national security” policy is also internally incoherent, opaque, and transactional. Both T-Mobile and Sprint, are controlled by foreign entities—
(DTE. Germany) with T-Mobile and SoftBank Group of Japan (9984. Japan) for Sprint. Trying to make sense of who’s “good” today and who’s “bad” is difficult to sort out, as recent reviews and “mitigations” from CFIUS indicate.
Then there’s a case currently awaiting a federal judge’s decision that involves a yearslong antitrust suit brought against Qualcomm (QCOM). That case is the bookend to Apple’s (AAPL) long-running litigation with Qualcomm, which recently settled. The Apple settlement left Qualcomm as a major supplier of chips and intellectual property for 5G systems, which in turns makes the Federal Trade Commission case against Qualcomm all-the-more important. How important? The Justice Department took the extraordinary step a few weeks ago of filing an argument against its antitrust sibling, the FTC, in the Qualcomm case, warning that the outcome could impair the ability of U.S. companies to compete in 5G if the FTC wins.
And so here’s where things stand. It is a good bet that the Justice Department will join Pai’s FCC and approve the deal on national security grounds. But in both cases, to do so involves dumping any antitrust rationale, short of “5G changes everything.”
At the very least, this megadeal will leave a set of burdensome legacies. Investors will have to deal with how T-Mobile will meet all the promises it has made, including not raising prices. But that may not be anywhere nearly as difficult as the Justice Department having to cope with a deepening credibility gap on all matters antitrust.
Write to Robert Teitelman at email@example.com