Uphill Climb for T-Mobile/Sprint May Be Getting Steeper
The road to approval for T-Mobile buying Sprint may be getting steeper. The Trump DOJ and the FCC continue to signal major communications transactions will get close scrutiny. Monday, FCC Chairman Ajit Pai said he circulated an order sending Sinclair/Tribune to an administrative law judge (see 1807170053). Last week, Justice notified the U.S. Court of Appeals for the D.C. Circuit it plans to appeal a lower court’s judgment that let AT&T complete buying TW (see 1807130034). Industry officials said none of the latest developments augers an easy path for T-Mobile/Sprint, noting every transaction is different and presents a new fact set.
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“Anyone that assumed that Pai would simply be a red stamp on any deal needs to re-evaluate,” said BTIG analyst Walter Piecyk. “It appears that the use of an ALJ to effectively kill a deal the FCC doesn’t like won’t be changing despite the change in the administration.” Piecyk is curious whether Commissioner Mike O’Rielly’s pleas “to reform or set a timeline” on the ALJ review “will be heeded or ignored.” Some expect it to encounter difficulty.
There are lots of “bad omens” for T-Mobile/Sprint, said Tech Knowledge Director Fred Campbell. “It’s hard to imagine the T-Mobile/Sprint deal getting a pass when the Trump administration’s current stance on communications mergers is considered alongside the previous administration’s refusal to allow the wireless market to go below four national providers and the FCC’s spectrum screen. Their uphill battle is starting to look more like a one-handed mountain climb.”
Don't read too much into how other big communications deals went, some said. “The fact pattern in each case is unique, perhaps politically as well as economically,” said Craig Moffett, analyst at MoffettNathanson. T-Mobile/Sprint "was never going to face an easy path, but I’m not sure that the opposition to any of these other deals changes the odds,” he said. DOJ, the FCC and the companies didn't comment.
Sinclair presented unique circumstances, said Blair Levin, analyst at New Street. “Pai may object to Sinclair but he apparently he is not doing so on traditional antitrust grounds but rather on somewhat idiosyncratic rules of attribution in broadcast and candor in dealing with the FCC,” Levin said. Look at the approval of Disney/Fox, with its greater concentration of studios, cable programming and ownership of Hulu as signs of a willingness to allow concentration when markets are shifting, an argument that would be good for T-Mobile/Sprint.” By the time next year when regulators finish their reviews of the big wireless deal, “there will be a number of other factors that may prove decisive, none of which were in play with the AT&T or Sinclair deals,” Levin said.
DOJ is likely to be much tougher than the FCC on all the pending deals, said Gigi Sohn, with the Benton Foundation and Georgetown Law Institute for Technology Law & Policy. Another common point is DOJ is demanding “real divestitures” to sign off, she said. “My sense is that the Justice Department is setting policy, it’s not the FCC.” Sinclair raised unique issues of candor, Sohn noted. “You know how the FCC is,” she said. “You can kill somebody and get a license, but if you lie to the federal government then they’ll look at your deal more skeptically.”
The consolidation of the prepaid market and reduction in places for MVNOs to go to obtain service are among the issues that complicate T-Mobile/Sprint, Sohn said. Sprint has said it needs the deal to be able to remain viable (see 1806270068). “It’s called the failing firm doctrine and … won’t work here because Sprint is doing better than it has in many years,” she said.
DOJ Antitrust Chief “Makan Delrahim has gone out of his way to let people know that each deal will be considered on its own merits and that his actions in unrelated matters should not be seen as clues,” said former Commissioner Robert McDowell, who has done work in support of the deal. “AT&T/Time Warner and Sinclair/Tribune have their own unique facts and circumstances that have nothing to do with the T-Mobile/Sprint combination. Additionally, many observers are scratching their heads over the decision to appeal the AT&T/Time Warner decision. … Either way, the T-Mobile/Sprint deal is a different kettle of fish."
T-Mobile/Sprint review will be similar to the FCC's review of AT&T/T-Mobile seven years ago, said Larry Downes, senior fellow at the Georgetown Center for Business and Public Policy. “The FCC will look at market concentration on a geographic basis, and at the combined spectrum holdings of the two companies.” AT&T/T-Mobile failed partly because the FCC wanted T-Mobile to continue to play its “maverick” industry role, “capable of disciplining the other nationwide facilities-based carriers in terms of pricing, services, innovative new offerings,” he said. “The current effort would leave T-Mobile in charge, and thus strengthen T-Mobile’s ability to continue to play that role.” The takeover offers “a life preserver for a flailing Sprint,” Downes said.