Sunday 25 August 2019

T-Mobile and Sprint win over US Justice Department but merger faces legal hurdles

Plans to combine T-Mobile and Sprint have moved a step closer after Justice Department backing. Photo: REUTERS/Carlo Allegri
Plans to combine T-Mobile and Sprint have moved a step closer after Justice Department backing. Photo: REUTERS/Carlo Allegri

David McLaughlin, Scott Moritz and Nabila Ahmed

The American Justice Department has approved T-Mobile US Inc's acquisition of Sprint Corp, a deal it rejected under the previous administration, clearing one of the biggest hurdles to a takeover that will reshape the wireless industry.

T-Mobile and Sprint agreed to sell multiple assets to Dish Network Corp as a condition for approval, paving the way to creating a new wireless company, the Justice Department said. The carriers have promised to deploy a 5G network that would cover 97pc of the US population within three years and 99pc within six years.

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"The remedies set up Dish as a disruptive force in wireless," said Makan Delrahim, the head of the Justice Department's antitrust division.

In addition to spectrum, Dish is buying Sprint's pre-paid businesses Boost and Virgin. T-Mobile is required to provide Dish with access to its mobile network for seven years, while the latter builds out its own 5G network.

Delrahim said Dish is paying $5bn (€4.5bn) to $6bn for the assets and that there are penalties if the company does not follow through on its commitments.

"Today is a whole different day," said Sprint executive chairman Marcelo Claure on Bloomberg TV. "It gets us closer to the final milestone. We want to build the best 5G network that the US will need to lead 5G."

The Justice Department approval moves Sprint and T-Mobile a step closer to completing their $26.5bn tie-up and gives the carriers a significant boost as they contend with a lawsuit by a group of states that say the deal should be blocked because it would harm consumers.

If the states decide to continue the litigation, they will have to convince a judge that the agreement with Dish to establish a new wireless carrier does not go far enough to resolve competitive harm from the merger.

The states wrote to a New York judge on Thursday to complain about what they said is a lack of transparency around the planned Dish deal, which they suspect may be arranged to "hobble" it as a competitor.

The combination of T-Mobile and Sprint, the number-three and four wireless carriers in the US, has also come under fire from lawmakers and consumer advocates, who say it will lead to higher prices and less innovation in a market that is already concentrated. The deal leaves just two other national carriers: Verizon Communications and AT&T.

Yet by acquiring Sprint's spectrum, T-Mobile will have nearly twice the wireless capacity of any other carrier. That should lower prices for subscribers by cutting in half the company's cost per gigabyte, a measure of how expensive it is to deliver service, according to Jonathan Chaplin, an analyst with New Street Research.

The Dish agreement is aimed at allowing the merger while maintaining four national wireless carriers, a long-standing requirement of the Justice Department. To work, Dish, the number-two US satellite-TV provider, will have to build a national network.

The company owns billions of dollars worth of unused airwaves, but it has no experience of selling phones or operating a mobile service.

T-Mobile chief executive John Legere - who remade the firm into a maverick competitor by eliminating annual contracts and offering unlimited data plans - disputes that prices will go up. He insists that by buying Sprint he will be able to better compete against industry leaders Verizon and AT&T, all to the benefit of consumers.

The Justice Department approval puts Sprint and T-Mobile within reach of completing a deal that they have flirted with for years. In 2014, top officials at the Justice Department and the Federal Communications Commission (FCC) rebuffed an effort by the companies to combine.

The carriers returned in 2018, hoping for a more favourable reception from the Trump administration. In May, they won the backing of FCC chairman Ajit Pai with the promise to deploy an advanced fifth-generation wireless network.

Pai said he will present a draft order "soon" that will follow the DoJ's filings. He said the agreement "will advance US leadership in 5G and protect competition".

Bloomberg

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