T-Mobile's Deal for Sprint Raises Concerns on Capitol Hill

(Bloomberg) -- T-Mobile US Inc.’s proposed purchase of wireless rival Sprint Corp. came under scrutiny Wednesday by U.S. senators who acknowledged possible benefits -- like next-generation service -- but also emphasized the need for competition among mobile providers.

Top executives from both companies said the merger would give the combined company an edge in the race to offer a high-speed fifth generation network, known as 5G, to consumers.

Senator Amy Klobuchar, a Minnesota Democrat, said she’s concerned about a deal that would cut the number of nationwide mobile providers from four to three and has the potential to raise prices.

“Explain how you’re going to pay for this," Klobuchar said. “I can’t help but think it’s going to mean higher prices in some way.”

She also pointed out that while companies "often promise millions, sometimes billions of dollars in efficiencies and cost savings," the question is whether consumers will actually see the promised lower prices or improved quality when the deal has been completed and there are fewer carriers to choose from.

Washington Scrutiny

Senator Mike Lee, the Utah Republican who chairs the Senate’s antitrust panel, said that consumers have “a strong interest in ensuring that competition continues.”

Lee pointed out that Sprint had opposed AT&T Inc.’s failed bid to buy T-Mobile in 2011, arguing the cost-savings the companies claimed wouldn’t materialize. He pressed Sprint’s executive chairman, Marcelo Claure, on what is different about the Sprint-T-Mobile deal. Claure said T-Mobile’s pursuit of Sprint was "completely the opposite" because rather than allowing AT&T to get bigger, the combination would establish a stronger rival to AT&T.

The hearing by the Subcommittee on Antitrust, Competition Policy and Consumer Rights puts more public scrutiny on the $26.5 billion merger, which is under review by antitrust officials. Senators don’t vote directly on mergers, but do play a role in appointing agency officials who vet deals.

Most of the panel’s senators didn’t attend the hearing.

The transaction requires approval from the Justice Department, the Federal Communications Commission and the Committee on Foreign Investment in the U.S., or Cfius, that reviews acquisitions of American businesses by foreign buyers. Sprint is owned by Japan’s SoftBank Group Corp.

Under President Barack Obama, both the Justice Department and the FCC opposed a tie-up of the two companies, taking the position that competition would be hindered.

Easier Path

Sprint and T-Mobile may face an easier path to a marriage today. President Donald Trump’s FCC chairman, Ajit Pai, has said he remains open about the number of major players in the U.S. mobile market, while the head of the Justice Department’s antitrust division, Makan Delrahim, said there’s no "magical number" for the number of competitors.

Investors are still concerned about the deal’s prospects for approval. Since the transaction was announced April 29, Sprint has lost 17 percent, while T-Mobile has fallen 8 percent.

T-Mobile Chief Executive Officer John Legere told lawmakers the merger would lower prices and give the combined company a leg up in the race to deliver 5G, advanced mobile service that can carry the so-called internet of things, sewing together millions of devices from factories to homes to automobiles.

“We’ll make sure America wins the global 5G race,” Legere said at the hearing.

Asked after the hearing about whether he was worried about winning approval from Cfius, Claure said, “We’ve proven that we’re a great partner to the U.S. government and we will continue to be that great partner and there’s no change of ownership. It’s pretty much the same actors.”

‘Not Sustainable’

Claure said the company had lost $25 billion over the past decade and was on a path that was “simply not sustainable.”

Critics, however, were focused on the potential harm to competition they say would result from combining the No. 3 and No. 4 mobile carriers.

“The last thing consumers need is fewer choices when it comes to their communications provider,” Gene Kimmelman, president of the policy group Public Knowledge and a former Justice Department antitrust lawyer, said in his testimony.

“The behavior of companies depends not on famous CEOs or winning personalities but on the cold equations of economic analysis.” Kimmelman said. “This merger creates a high likelihood of coordinated effects -- the risk that the prices, plans, and practices of AT&T, Verizon, and T-Mobile/Sprint would increasingly mirror each other.”

The deal could cost 30,000 jobs, with losses resulting from closures at overlapping retail stores, the Communications Workers of America said in a news release.

Legere told senators that the union failed to take into account jobs that would be brought to the U.S. from overseas. He said the new T-Mobile would add 10,000 positions by 2021.

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