FCC, DoJ file statements supporting T-Mobile/Sprint deal

The Department of Justice and Federal Communications Commission (FCC) on Friday filed court documents supporting the merger of T-Mobile and Sprint and criticizing the states that are fighting the deal in court.

The case involving 14 state attorneys general (AGs) has been underway in a New York courtroom the past two weeks. The FCC officially approved the transaction, with conditions, in October, with the two Democratic commissioners dissenting, and the DoJ approved it in July, contingent on Dish Network being set up as a fourth facilities-based network operation and other conditions. (The FCC’s merger review process has been called into question, however, most recently by two members of Congress.) 

As a result of the conditions the DoJ’s antitrust division and the FCC secured, “consumers in rural areas will gain new access to high-quality 5G networks and consumers nationwide will continue to have four fully competitive options for their mobile wireless services,” the DoJ and FCC stated in their filing. “… The Litigating States’ strong interest in this merger does not justify their attempt to substitute their judgment for the nationwide perspective of the United States.”

The DoJ’s antitrust division, headed by Makan Delrahim, conducted a 15-month investigation into the transaction and found that T-Mobile’s acquisition of Sprint, if not remedied, likely would substantially lessen competition in the retail mobile wireless service market in the U.S. However, with the appropriate relief, the merger would yield “significant efficiencies” that would benefit consumers nationwide, according to the agency.

Separately, the FCC investigated the merging parities, which needed the FCC’s approval to transfer licenses and spectrum leases held by Sprint and its subsidiaries to T-Mobile. The FCC found it would serve the public interest to approve the transfers, with conditions. The merging parties need to cover 97% of the U.S. population with 5G service within three years of the consummation of the transaction and 99% within six years, and they “specifically committed to build out their new 5G network to rural communities,” according to the filing.

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Both the antitrust division and the FCC considered central to their relief T-Mobile’s divestiture of Boost Mobile’s business and 9 million subscribers to Dish, enabling it to be a competitor while it builds out its 5G network. Within one year of the divestiture’s closure, Dish is supposed to begin offering postpaid nationwide mobile wireless service plans. For up to seven years, Dish will be able to use T-Mobile’s network “at favorable rates” to offer Dish mobile wireless service.

While the 13 state AGs and the District of Columbia are trying to block the merger, 10 states have joined the antitrust division’s suit seeking approval of its settlement and three more states have publicly supported the deal. Four states left the state AGs seeking to block, and the remaining 22 states have neither objected in the Tunney Act proceeding nor joined the litigating states’ suit, the DoJ and FCC noted in their filing.

Bottom line: It's close

U.S. District Judge Victor Marrero has been presiding over the case while the state AGs and the companies presented their sides. Of course, if the judge rules the transaction is bad for consumers, it would look bad for the DoJ and FCC.

Over the past two weeks, witnesses included T-Mobile CEO John Legere, incoming CEO and current President and COO Mike Sievert, head of Technology Neville Ray and Dish Chairman and co-founder Charlie Ergen, as well Sprint executives and economists.

RELATED: Dish’s Ergen holds up against credibility challenges during T-Mobile/Sprint trial

In a note to investors on Friday, analysts at New Street Research noted that for a long time, they thought it was close but gave the edge to the states. “We still do. We think the judge has demonstrated more sympathy to the states’ narrative. That came across in a number of ways during the cross-examination of Ergen, on issues related to the market being composed of four firms, the inherent conflict of interests between an MVNO and the MNO on which the MVNO relies, and even that DISH would enter the market if the court blocks the deal,” wrote New Street analyst Blair Levin.

“We think the case is close and both sides probably think they are winning but know there is a material risk that they will lose,” he wrote. “In such a situation in a commercial litigation, we would see the prospects of settlement as fairly high. We do not see the odds as high here but think a settlement is slightly more possible than in a situation in which one side or the other appeared to be way ahead.”

Final arguments are expected next month, with the judge potentially making his decision known in February.