Coming Court Decision on AT&T/TW Seen Having Implications for T-Mobile/Sprint
Government reaction to AT&T buying Time Warner may provide some lessons on how it might treat T-Mobile/Sprint, analysts and former FCC officials said. More will be known on the companies’ arguments when they make their FCC public interest filing. Some said the deals are different, but parallels are possible. T-Mobile/Sprint even before inked was seen a key test of Trump administration deal policy (see 1804300055).
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
The carriers made the initial case the transaction will lead to more competition against cable in the in-home broadband market. AT&T/TW made that argument about competition against big data platform players, which DOJ rejected. Another area of potential similarity is market definition. T-Mobile and Sprint are expected to argue the transaction should be looked not based on its effects on the wireless market but on the broader broadband market. Justice rejected a similar argument by AT&T that the deal should be looked at in the context of over-the-top video providers.
Some believe "litigation against AT&T’s deal is irrelevant to the wireless deal, as one involves a vertical deal and the other involves a horizontal deal,” New Street Research emailed investors. But it sees "important lessons from the way the government argued during the trial that suggest ways the DOJ staff might react to some of the T-Mobile/Sprint arguments.”
Though the facts are different, “how the DOJ reacts to the AT&T judgment will help clarify its governing philosophy,” said a lawyer representing carriers. “It is still too early to tell whether this antitrust division's North Star is merely 'big is bad.'” The scrutiny DOJ is giving Sinclair/Tribune “tells the world that the lawsuit to block AT&T/TW may be more than an anomaly,” the lawyer said.
Everyone will be watching the ruling in AT&T/TW by U.S. District Judge Richard Leon, expected June 12, said Craig Moffett of MoffettNathanson. “It would be a mistake to paint them with the same brush,” Moffett told us of that deal and the wireless combination. Would "DOJ be "less inclined to take on any big enforcement action if they lose the AT&T case," he asked. "Everyone is focused on the outcome of AT&T as if it is a binary thumbs up or thumbs down. But a lot depends on not just what Judge Leon says, but how he says it.”
Others said the AT&T decision likely will have little effect on the wireless takeover. George Hay, antitrust expert and professor at Cornell Law School, is one such expert. “I expect a fairly straightforward opinion” from Leon, Hay told us. “If he rules against DOJ, he will simply say that the evidence does not support the DOJ’s expert’s theory. That would have limited relevance to the T-Mobile case. Nor do I think a DOJ loss would scare them off. [DOJ] can’t exit the merger business just because they lose a big case.”
The two transactions are very different, said Paul Glenchur, analyst at Hedgeye Potomac Research. “I assume T-Mobile and Sprint will make various efficiency arguments and perhaps argue the combination facilitates residential broadband competition against cable,” Glenchur said. “Verizon is launching 5G fixed against cable in some markets, for example. But the big difference in this context compared to the AT&T/Time Warner deal is its horizontal nature.” Efficiencies likely will have more of secondary role in T-Mobile/Sprint analysis, he said. “In the AT&T deal -- a vertical transaction -- efficiencies in terms of cost savings, digital advertising, product innovation and other areas are the core reasons to pursue the vertical deal.”
“T-Mobile/Sprint have a reasonable argument about competing with wired broadband,” said Paul Gallant, Cowen analyst. “I think that will be more interesting to DOJ than Time Warner competing against Google and Facebook. But DOJ is going to want to see persuasive evidence.”
Deal Notebook
It’s a coin toss if Sprint/T-Mobile gets regulatory OK, three out of four analysts said on a Wireless Infrastructure Association panel Tuesday (see 1805220034) in Charlotte. Raymond James' Ric Prentiss gave higher odds, saying the deal is 65 percent likely to be approved, though he said the companies must “run through the finish line.” A “new playbook” this time helps, with the companies making a timely pitch that the deal will help the U.S. beat China to 5G, he said. Wells Fargo's Jennifer Fritzsche doubts it will be easy and sees “a big fight … from a regulatory standpoint.” Getting DOJ approval is the big hurdle, said MoffettNathanson's Nick Del Deo; going from four to three carriers may be too much market concentration for the antitrust regulator, he said. DOJ may prefer having two lower-priced carriers as competition to AT&T and Verizon, said Atlantic-ACM's Doug Barnett. T-Mobile may be a “victim of its own success” because it showed how competition can reduce prices at Verizon, Fritzsche said. Closing the deal would mean one fewer customer for WIA tower company members, she noted. Sprint could divest some spectrum to Dish Network to avoid the satellite company's resistance, said Prentiss.