T-Mobile’s Late-Game Filing Could Be a Bad Sign for Sprint Deal
(Bloomberg) -- The 63-page filing by T-Mobile US Inc. this week was meant to demonstrate that its purchase of rival Sprint Corp. is in the public interest. Yet the filing’s appearance -- which prompted U.S. regulators to pause their review -- had some observers wondering if it’s a sign of trouble for the $26.5 billion deal.
“At this stage of the game, filing something elaborate like this is not a sign of strength,” said Andrew Jay Schwartzman, a media lawyer at Georgetown University Law Center. “It’s not the kind of thing you would expect at an advanced stage unless they saw that they were getting pushback that they were trying to address.”
The proposal to combine the third- and fourth-largest U.S. wireless providers, which was filed with regulators last June, has drawn criticism from Democrats and policy groups who say it would reduce competition, and could lead to higher prices. The companies say that, together, they can create a stronger competitor to industry leaders AT&T Inc. and Verizon Communications Inc.
The Federal Communications Commission tries to finish its scrutiny of deals in 180 days, and Thursday that count stood at 122 days. It will stay there until April 4 as the agency asks for public comment on T-Mobile’s latest filing, which outlines a plan by the companies to bring wireless in-home broadband to millions of rural and low-income households.
“Doing so ensures that the public interest in a speedy review is balanced with the public interest in careful and thorough analysis and the need for third parties to comment on material information submitted by the applicants,” the FCC said in its notice.
The pause became the latest indication that the deal was encountering skepticism from regulators, said Gigi Sohn, a former FCC aide who opposes the deal.
“All indications were this would be decided in the next few weeks” but now it appears “they haven’t made the case to the policy makers,” Sohn said in an interview. “They’re still grasping at new theories.”
T-Mobile and Sprint each have foreign owners that will have significant roles in the combined entity. Deutsche Telekom AG, based in Bonn, would own 42 percent of the new company, while Tokyo-based SoftBank Group Corp. would own 27 percent.
Last year, T-Mobile appeared to shift emphasis in its argument for the deal, from its rationale of quickly building a 5G network to becoming a stronger competitor to AT&T and Verizon. Then last month, it vowed not to raise prices for three years, a sign some saw as an acknowledgment that the deal could lead higher bills for consumers.
In its March 6 filing, T-Mobile said the merger “will unleash a disruptive and effective competitor upon an in-home broadband industry typified today by extreme and growing consumer dissatisfaction.”
“Are they trying to add a new argument, or bolster an existing argument?” said Blair Levin, a former FCC chief of staff. If T-Mobile is adding a new argument, “it tells us their current arguments may not be working so well.’’
The spread between the offer price per share for Sprint and the trading price, an indication of the deal’s risk, hit a high last month. That suggests that investors were increasingly pessimistic that the transaction would clear regulatory hurdles.
T-Mobile dropped 55 cents to $70.77 and Sprint was off 8 cents, or 1.3 percent, to $6.22 at 11:17 a.m. New York time.
T-Mobile cast the pause as a good sign.
“We believe it is a positive step that the FCC is so deeply engaged in understanding this transaction,” the company said in an emailed statement. “We continue to look forward to completing the regulatory approval process in the first half of this year.”
Analyst Roger Entner, at Recon Analytics LLC, said the pause was “probably good for the deal” because it would give T-Mobile a chance to portray a fresh rationale for the combination.
“The major hangup that the FCC has is that everything that T-Mobile says it would need the merger for, T-Mobile already is doing anyway,” such as building 5G connections, Entner said in an interview.
Debbie Goldman, research and telecommunications policy director for the Communications Workers of America union, which opposes the merger, sees it otherwise. “It seems clear that the companies have failed to persuade regulators,” she said.
Scrutiny of the deal is set to intensify. The Democratic-led House antitrust subcommittee has called T-Mobile Chief Executive Officer John Legere to testify at a March 12 hearing, alongside Sprint Executive Chairman Marcelo Claure, and critics of the merger.
The deal requires approval from the FCC and from antitrust enforcers at the Justice Department. State attorneys general are expressing concerns the merger could raise prices for consumers.
The new service for fixed wireless broadband will use capacity not consumed by wireless customers, T-Mobile said. Subscribers to in-home broadband could reach 9.5 million by 2024, according to the filing.
“We will offer a meaningful new option to millions of Americans in the form of New T-Mobile Home Internet,” Legere said in a blog post Thursday.
The offering may make for attractive politics, but “it’s not that attractive as an antitrust argument,” said Levin. Regulators consider in-home broadband to be a separate market from mobile service, he said.
“Increased competition in Market B does not justify a merger which hurts competition in Market A today,” Levin said.
T-Mobile said in a statement that in-home broadband “has been part of the New T-Mobile plan from the very beginning.”
Additional competition to cable broadband service would be attractive to the FCC, Schwartzman said. The question from regulators will be why the companies need a merger to offer the service as opposed to creating a joint venture, he said.
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