Beating DOJ in Court May Be a Necessary Step if SoftBank/T-Mobile Deal Stands Chance of Approval, Analysts Agree
Sprint and its parent SoftBank may end up having to embrace a litigation strategy to win regulatory approval of their expected buy of T-Mobile, industry officials and former regulators told us. FCC Chairman Tom Wheeler and the Department of Justice have signaled repeatedly that they would not welcome a deal combining Sprint, the third-largest wireless carrier, with T-Mobile US, the fourth-largest.
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In August 2011, DOJ sued to block AT&T’s proposed buy of T-Mobile (http://1.usa.gov/1rEt4tZ), the last proposed merger between major national carriers. AT&T initially fought the DOJ action, but eventually withdrew the deal in December 2011.
A SoftBank/T-Mobile deal is unlikely to make it through DOJ, said a longtime antitrust attorney who represents a group opposed to a merger. The attorney said SoftBank CEO Masayoshi Son and other SoftBank officials are likely already anticipating they will have to go to court to fight DOJ. “There’s really no concessions they can make, it’s an up or down deal,” the lawyer said. “They can’t spin anything off to appease anybody.”
"The biggest risk to getting approval is if the FCC refers the deal to the administrative law judge or other regulatory barriers,” said Walter Piecyk, analyst at BTIG. “But if the FCC allows the DOJ to proceed first, we think SoftBank would have a decent shot at proving their case in front of a judge.”
"Litigation has to be a big part of SoftBank’s thought process,” agreed Paul Gallant, analyst at Guggenheim Securities. “Sprint/T-Mobile has a plausible pro-competition story that would give them a decent chance of beating DOJ in court.” Regardless, the FCC will be a “very tough hurdle to get past,” Gallant predicted.
A litigation strategy is likely SoftBank’s best bet, said a former FCC spectrum official not involved in the rumored merger. SoftBank may ask the FCC upfront to hold its review in abeyance until antitrust issues are resolved in court, the lawyer said. If SoftBank wins in court it’s “much harder for the FCC to then designate the matter for a hearing,” the lawyer said. “So the notion would be to get the FCC to delay sending it to” an administrative law judge, “which is effectively a death-knell.”
Getting approval is the regulatory equivalent of “climbing Mount Everest,” said a former FCC legal advisor, also not involved in the merger. “It appears that SoftBank appreciates the risk and expects to prepare for the long haul."
"I don’t doubt that SoftBank and Mr. Son would be willing to litigate,” said Matt Wood, policy director at Free Press, a group that lined up against AT&T/T-Mobile.
The strategy is a losing one since the FCC could still say no, said Public Knowledge Senior Vice President Harold Feld. The FCC’s review of a possible merger under the public interest standard goes well beyond antitrust issues examined by DOJ, he said. Public Knowledge also lined up against AT&T/T-Mobile three years ago.
If the FCC refers the matter for hearing, the antitrust trial is likely to stop until the FCC issue is decided, Feld said. “Unless the FCC approves the transaction, there is nothing for the antitrust court to decide.” That is exactly what happened in the AT&T/T-Mobile fight, he noted. “Once AT&T opted to pull their FCC application, the court asked why they should even be moving ahead with an antitrust trial given that there was nothing to adjudicate unless there was an approved FCC transfer. ... Unless the FCC is prepared to transfer the licenses, there is no case for the court to consider."
SoftBank announced last week it had hired Google’s Nikesh Arora to help steer its global expansion. Arora is to join SoftBank as vice chairman in October after almost a decade at Google, including stints as chief business officer and head of European operations, SoftBank said (http://bit.ly/1nuSKdu).