Sprint and T-Mobile merger may be back on track after FCC hints it will bless the deal

Posted at 9:32 PM, May 20, 2019

Sprint and T-Mobile have been trying to get married for years. They just got a step closer.

The companies announced Monday that they have adjusted their merger terms to address concerns brought to them by the FCC. The regulator and the US Department of Justice both have to approve the deal before the companies can complete their merger.

The companies agreed to certain coverage commitments, including 100 Megabit-per-second download speeds (equivalent to fast home broadband speeds) accessible to about 66% of Americans within three years of the deal’s closing. The companies pledged to build a 5G network within six years following the merger. That network will, they promised, also include coverage for some rural Americans, and they said the new company will offer an in-home broadband product.

Sprint will divest its low-cost Boost Mobile wireless company, and that new company will promise to offer better prices than those currently offered by T-Mobile or Sprint for three years following the deal’s closing. The companies agreed to pay the FCC up to $2.4 billion in fines if they violate the agreement.

FCC Chairman Ajit Pai on Monday announced that he now believes the deal is in the best interest of American consumers, and he’ll recommend that the FCC approve the merger.

“This is a unique opportunity to speed up the deployment of 5G throughout the United States and bring much faster mobile broadband to rural Americans,” Pai said in a statement. “We should seize this opportunity.”

Sprint’s stock soared 24% Monday. T-Mobile’s stock was up 5%.

Untiil Monday, the merger was widely believed to be dead. The Wall Street Journal reported last month that the US Department of Justice was unlikely to allow the companies’ proposed $26 billion merger to go forward as it had been constructed.

The Journal reported that Justice Department antitrust officials are concerned about the impact the merger wouldl have on competition in the wireless industry. The companies’ stocks had since tumbled.

It’s unclear if the revised terms will win over the Justice Department, which will still have to approve the merger even if the FCC signs off. Although the FCC and Department of Justice usually act in concert, they don’t always agree.

T-Mobile CEO John Legere and Marcelo Claure, executive chairman of Sprint’s board, disputed the Wall Street Journal’s article in April.

The Department of Justice declined to comment.

A brief history of Sprint and T-Mobile’s merger attempts

The American wireless market is ultra-saturated. Verizon and AT&T, which owns CNN parent company WarnerMedia, dominate the industry. Each has more than 100 million wireless customers. Sprint and T-Mobile combined have fewer than each of their bigger competitors.

That’s why the two companies have tried for years to merge. Wireless technology is among the most capital-intensive industries, with annual costs of upkeep and expansion in the tens of billions of dollars. Verizon and AT&T have both launched 5G networks, and Sprint and T-Mobile lag behind. If they’re combined, the companies say, they’ll be able to pool resources to cut costs and build a 5G network for customers faster.

Sprint and T-Mobile have discussed a merger before. But they scrapped it in 2014 because of concerns about regulatory challenges from the Obama administration.

They began publicly talking about a merger again in 2017 only to announce that they had stopped talking about it later that year. But in April 2018, they announced their latest merger attempt.

Such corporate mergers require approval from a host of different government agencies and regulatory divisions.

The Trump administration has been mostly receptive to mergers and acquisitions, with the notable exception of AT&T’s purchase of Time Warner, including CNN. Earlier this year, the Justice Department lost its appeal of a lower court judge’s decision to allow the acquisition, and the Justice Department said it would drop its fight against the purchase.

In December, Sprint and T-Mobile received approval from the Committee on Foreign Investment in the United States, a government panel that vets certain deals involving foreign investors.

At the time, the wireless operators also said the US Departments of Justice, Homeland Security and Defense had withdrawn an earlier request to delay the deal. That decision, however, pertained to potential national security, law enforcement and public safety issues — not antitrust concerns.