U.S. Regulators Seen as Likely to Embrace Bid by France’s Iliad for Control of T-Mobile
Sprint officially has competition to buy T-Mobile. French operator Iliad said it’s submitted a $15 billion cash bid for 56.6 percent of T-Mobile. In France, Iliad has been an aggressive competitor, offering service in some cases for less than $3 a month.
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"The US mobile market is large and attractive,” Iliad said in a news release (http://bit.ly/1zzRPeD). “T-Mobile US has successfully established a disruptive position, which in many ways, is similar to the one Iliad has built in France.” The deal would be similar to SoftBank’s earlier buy of Sprint, and likely get FCC and FTC or Justice Department OK, said all industry officials we interviewed. That transaction met with easy regulatory approval because it did not raise market power issues and left in place four national competitors in the U.S. market. Both FCC Chairman Tom Wheeler and the Department of Justice have signaled concerns about any Sprint/T-Mobile (CD July 22 p1).
Also Thursday, T-Mobile US reported strong continuing subscriber growth, on a track that could make it bigger than Sprint in less than a year (http://t-mo.co/1qtm7u3). T-Mobile added 1.5 million net subscribers in Q2, beating analyst estimates. Company executives said this was the fifth quarter in a row in which T-Mobile added more than a million net subscribers and it now has 50.5 million customers.
Credit Suisse analyst Joseph Mastrogiovanni questioned whether the Iliad offer is real. The bid comes in at $33 per share, versus the $40 per share Sprint is expected to offer. “We are skeptical that T-Mobile and its shareholders, including Deutsche Telekom, will find this bid attractive,” he wrote investors. “However, it could put pressure on Sprint to move sooner rather later.”
Iliad is about one-third the size of T-Mobile, said New Street analyst Jonathan Chaplin. He questioned if the deal makes sense.
BTIG analyst Walter Piecyk told us as long as Iliad makes an offer that T-Mobile parent Deutsche Telekom could accept, Iliad/T-Mobile would have a comparatively easy time winning regulatory approval. “Regulators could maintain four competitors and bring in a company known for price aggression,” Piecyk said. “Sprint would have to present financial terms above Iliad in order to compensate for the higher risk of their deal.” Other industry officials, including former federal regulators, agreed an Iliad bid would have a relatively easy time before regulators.
Ex-FCC Commissioner Robert McDowell said the regulatory analysis of Iliad/T-Mobile would be very similar to the analysis in the SoftBank/Sprint proceeding. “It would be maintaining the U.S. marketplace with four national carriers and as such would give the antitrust regulators virtually no heartburn,” McDowell said.
"The FCC would not say this publicly, but this is great news for the government if it comes to fruition,” said Rick Kaplan, executive vice president at NAB and former chief of the FCC Wireless Bureau. “Whether or not Sprint is a objectively a better partner for T-Mobile, the FCC and DOJ have made it clear they want four competitors and not three in the wireless space. This new bid, and now others that may come, likely gives the FCC hope that this process can have a happy, and far less messy, ending."
The conventional wisdom is that Republicans believe three national wireless carriers is enough, while Democrats insist four is necessary, said Armand Musey, managing director at Goldin Associates. In a Democratic administration, Sprint/T-Mobile is likely to fail unless regulators see another potential competitor waiting in the wings to fill the void, he said.
"This deal would seem to present none of the horizontal concentration issues that Sprint’s bid does,” said Free Press Policy Director Matt Wood. A former FCC spectrum official said DT should take the Iliad offer if it can: “If he could, I bet Chairman Wheeler would roll out a red carpet for this one."
T-Mobile reported Q2 earnings of $391 million, compared with a $54 million loss in the year-ago quarter. Revenue came in at $7.19 billion. With auctions looming, T-Mobile had cash on hand of $3.1 billion at the end of the quarter, the company reported.
T-Mobile’s results, and the positive results Sprint released Wednesday (CD July 31 p8), raise questions about why the two carriers are contemplating a merger, said Debbie Goldman, Communications Workers of America telecommunications policy director.. The financial results “confirm that competition between the companies is thriving, and that consumers are benefitting,” she said. “Allowing Sprint to acquire T-Mobile would eliminate that healthy competition, reduce choice for consumers, harm workers, and reduce incentives for the industry’s leaders to innovate.”