Merger: A Sprint to 5G

At Last The Time Has Come

In 2018, Sprint and T-Mobile announced a merger, to form a new company. This new company would be at a whopping $146 billion. The new company would be split 3 ways. Deutsche Telekom would own the majority — 42%. SoftBank Group is eager to make-up for its WeWork Snafu and currently holds 27%. The remaining 31% will remain publicly traded. Two years later the deal is looking like it will close

WHAT TOOK THE MERGER SO LONG TO APPROVE?

On June 18, 2018, the mobile carriers began the regulatory review process by formally submitting an application to the Federal Communications Commission (FCC). This part was easy. The two carriers gained approval in November of 2019 without any concessions.

In comes the Department of Justice (DoJ), specifically Antitrust Division, but ultimately reached a settlement. This settlement promotes a prompt deployment of multiple high-quality 5G networks for the benefit of American consumers and entrepreneurs. It also lays out a divesture plan that should enable competitors to enter the market.

WHAT IS THE DIVESTURE PLAN & HOW DOES IT WORK?

T-Mobile and Sprint must sell Sprint’s prepaid business. This includes: Boost Mobile, Virgin Mobile, and Sprint prepaid, to Dish Network Corp.

The agreement also entails the divesture of certain spectrum assets to Dish. Additionally, T-Mobile must make 20,000 cell-tower sites & 100s of retail locations available to Dish. T-Mobile has to also provide Dish with access to the T-Mobile network for a period of seven years. During this time, Dish may build out its own 5G network to provide fair competition.

Despite securing approval from the FCC and DoJ, the journey didn’t stop there. In 2019, a handful of Attorney Generals banded together to file a lawsuit to block the wireless carriers’ deal.

Earlier this month a U.S. judge ruled in favor of the merger which marks the last regulatory hurdle to get the deal closed. We can’t even begin to imagine the legal fees & taxpayer dollars spent to create a company which, admittedly, is larger than Verizon and AT&T; however, the company services a different market and neither stood a shot against the two original giants alone.

WHAT DOES THIS MEAN FOR THE COMMUNICATIONS INDUSTRY?

As AT&T (141 million subscribers) and Verizon (150 million subscribers) dominate the wireless communications industry. The new combined entity with 126 million customers, would create a formidable force. T-Mobile and Sprint have tried to merge twice before.

In 2014, Sprint’s majority shareholder, SoftBank floated the idea of a deal with T-Mobile. Unfortunately for them, regulators and the White House were major proponents for keeping four national competitors.

Given the current administration and FCC being more amicable, both sides got close to an agreement in 2017. The deal fell apart later that year, when SoftBank and T-Mobile parent Deutsche Telekom couldn’t come to terms on how much control each side would get.

WHAT DOES IT MEAN FOR THE US (I.E. THE CUSTOMERS)?

T-Mobile and Sprint are promising that the combined network will deliver better service at lower prices. Additionally, their combined scale will them build out a faster, more efficient 5G network.

Although AT&T surged ahead with 5Ge which is literally a rebranding of 4G and they’re being sued (Google It), the new combined network could prove a formidable adversary if the merger goes well.

Consumer advocacy groups seem skeptical. Matt Wood, Vice President of Policy and General Council for the Press stated. “This deal will be most harmful to the two carriers’ poorer and more urban customer base. They will pay dearly for this combination after yet another failure by our nation’s antitrust enforcers”.

AS IT TURNS OUT, THEY HAVE CAUSE FOR CONCERN.

The national merger of Sprint and T-Mobile was “successfully” completed on April 1st. Successfully in quotations, because the post-merge regulatory environment has been no more smooth than that leading up to the merge. This is due to a number of factors, namely disagreements between the newly merged T-Mobile, and the California Public Utilities Commission.

For some context, the CPUC was one of the final hurdles for T-Mobile and Sprint on the path to merging. California’s Attorney General Xavier Becerra had filed a lawsuit against T-Mobile, voicing the state’s concerns that the merge would push out competition and leave consumers with higher prices and lower quality services. However, he reached a settlement with the company on March 11th, holding T-Mobile to consumer — centric policies including a local hiring requirement, and extended access to underserved Californian communities.

As of late, T-mobile seems to be backing out of their promises. Perhaps we should have seen this coming, with the event of foreshadowing that occurred in early April. T-Mobile blatantly ignored the CUPC’s request to not complete their national merger, until the CUPC themselves had agreed to the in-state integration of T-mobile and Sprint operations. That decision was supposed to come on April 16th, while T-mobile closed their merge on the 1st. Now, T-Mobile is calling for the CUPC to change or remove some of the requirements that came out of their settlement, including the requirement to hire 1,000 Californian employees within 3 years of the merger closing, as well as the mandate that T-mobile reach 93% of California’s population with 5G network speed by the end of 2024. And how can they make these changes? By claiming that the CPUC does not have the authority, if any at all, to impose mandates on the merged company’s hiring plan and expansion.

T-Mobile is crying COVID-19 to justify their unwillingness to fulfill the CUPC’s settlement terms. As such, the future of network provision, job creation, and new competition in the industry is nebulous, and we have the merger to thank for that.

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Originally published at https://blog.rapunzlinvestments.com on February 25, 2020.