Sprint/T-Mobile merger could face challenges in California

The California Public Utilities Commission (CPUC) has scheduled an “evidentiary hearing” to review the proposed merger between Sprint and T-Mobile in February, and the commission isn’t scheduled to issue a decision on the transaction until June of next year.

The issue could represent a setback for Sprint and T-Mobile, which have been pushing to quickly obtain regulatory approval for their proposed transaction.

A T-Mobile representative declined to comment on the CPUC’s action.

The Deal first reported on the CPUC’s action, noting that such hearings are relatively rare and could signal “rigorous scrutiny” by the California agency.

“The fundamental issue presented by these applications is whether the proposed merger of two of the four largest national wireless service providers is in the public interest of the residents of California,” the CPUC wrote in its order. “This is the standard historically employed by the Commission to evaluate proposed transactions involving public utilities subject to its jurisdiction. A determination of the public interest requires a consideration of significant factors implicit in the proposed transaction. Below I list some of the factors that the Commission will consider in making a public interest determination regarding the effects of the proposed merger on the residents of California.”

The CPUC said it would evaluate 14 points on the merger:

1. Would the merger result in reduced competition in any metropolitan area or other geographically distinct market for wireless services?

2. What are the relevant markets?

3. Would the merger give the merged company monopsony power or increase the tendency to monopsony power including market power over equipment suppliers?

4. What merger-specific and verifiable efficiencies would be realized by the merger?

5. Would the merger promote or constrain innovation?

6. How would the merger affect the market for special access services?

7. How would the merger affect the market for special access backhaul services?

8. How would the merger affect the ability of independent competitive wireless carriers to obtain backhaul services?

9. Would the merger increase the market power of the incumbent local exchange carriers and their wireless affiliates?

10. Would the merger maintain or improve the quality of service to California consumers?

11. What California utilities would operate the merged properties in the state?

12. Would the merger preserve the jurisdiction of the commission to effectively regulate those utilities and their operations in California?

13. Would the benefits of the merger likely exceed its detrimental effects?

14. Should the commission impose conditions or mitigation measures to prevent significant adverse consequences and, if so, what should those conditions or measures be?

“Obtaining satisfactory answers to the above questions will require consideration of multiple factual issues,” the CPUC added. “These include, but are necessarily limited to, issues related to innovation, service quality, customer satisfaction, pricing policies, pre-paid services, wholesale markets, the roll-out of 5G services (particularly in rural markets), system integration, device compatibility, customer migration, net neutrality, customer privacy and mandatory arbitration clauses. Accordingly, evidentiary hearing is needed on these issues.”

The CPUC scheduled public participation hearings on the merger in November and December, an evidentiary hearing for Feb. 6-9, opening comments by May 10, reply comments by May 24, and its decision on the matter in June.

Sprint and T-Mobile announced their plans to merge in April, arguing that the transaction would create a viable competitor to AT&T and Verizon, would hasten the rollout of 5G technology, and result in a net increase in jobs. Most analysts now believe the companies will receive approval to merge from the FCC and the Department of Justice, albeit potentially with conditions or divestitures.

It’s unclear how the CPUC’s actions might affect the transaction. Interestingly, the state of California recently inked new net neutrality legislation that brought a swift rebuke from the DOJ.