T-Mobile merger poses more questions than answers

Sprint and T-Mobile have staked their corporate futures on the success of a controversial $26 billion merger. While the companies have hyped the deployment of a “true 5G” network to investors and consumers, the FCC and Justice Department have yet to approve the combination, and now reports are that DOJ has concerns. Although Congress does not have a formal role in the process, that has not stopped Members from both parties from voicing both support and opposition to the deal. Those concerns have raised a series of thorny questions, which the companies are now hard pressed to answer.

A recent letter signed by 36 Democratic Representatives says the merger will: (1) “destroy jobs and drive down wages”; (2) “disproportionately hurt lower income people and communities of color,” and (3) “leave the majority of rural Americans without access to high speed wireless.” It also says the merger is not needed to build out 5G networks. This follows a similar letter sent to the Justice Department in February by prominent Senate Democrats. On the other hand, Silicon Valley Representative Anna Eshoo (D-Calif.) joined with Representative Billy Long (R-Mo.) and a dozen other House members to express their support for the deal. 

As the Department of Justice and the FCC pass the midway mark of the merger review, the very rationale for the merger has come under scrutiny. Arguments suggesting a loss of jobs have been picked up by labor groups and progressives. Questions surrounding high-speed rural access have found favor with Red-State Representatives. And the impact on lower income people and communities is a recurring theme.

{mosads}With beltway politics becoming more prominent, Sprint and T-Mobile have had to make mid-course adjustments. The companies have gone above and beyond the normal assurances required of putative merging companies. It appears that the legendary John Legere has made the merger a personal matter. Of course, it is hard to strip Legere’s outsized personality from his business persona. His quips about the competition’s shortcomings has won him no friends inside the beltway, but again, Legere marches to the beat of his own drummer.

At this point, the Sprint-T-Mobile merger has a higher than 50-50 bar to overcome. It must satisfy ongoing concerns about fixed and mobile 5G; the integrity of the prepaid wireless market, and the ever-present matter of consumer pricing.

In addition to these substantive issues, the companies should be watching the tea leaves on the comings and goings at the Department of Justice, especially in light of rumors and reports that the Assistant Attorney for Antitrust, Makan Delrahim, may be on his way out. Whether Delrahim leaves before the agency is done with the Sprint review would be a telling sign, indeed. Suffering two high-profile losses on the AT&T merger, the Justice Department may be looking to even the score on this one. Blocking a merger in the name of competition is never a black mark for a conscientious regulator, especially at a time when “big is bad” is a campaign theme.

In fact, the big-is-bad argument has an attractive emotional appeal, especially when big companies behave badly. Zeroing in on telecom, media and technology firms is a safe bet for the big-is-bad movement, which gains occasional momentum from high profile mergers. And there have been a number of them over the last few years, beginning with the Comcast – NBC Universal deal in 2013. Since then, we have seen AT&T – Time Warner at $85 billion; Comcast – Sky at $32.5 billion and a proposed Sprint – T-Mobile at $26 billion. Each of these deals has been opposed by key lawmakers and activists who, for whatever reason, never met a merger they liked. 

While the Trump Administration’s competition policy is inchoate and somewhat inconsistent, there is a reflexive populism to which it pays attention. And those voices have rung louder in the polls as well. But it is still not so clear whether many Americans are tuned in to the details of this merger.

{mossecondads}If the DOJ and FCC approve the merger, it would not be surprising to see the imposition of certain conditions. Behavioral conditions have become anathema to regulators, primarily because they are hard to enforce. The cure for that shortcoming would be the selection of an independent monitor to oversee any conditions that might be imposed on the company other than the divestiture of assets. 

The path forward for Sprint and T-Mobile independently is tricky, particularly given the increased priority of 5G deployment. 5G wireless technology is the next big thing. And like most big things, the stakes are high. As the backbone for the Internet of Everything, 5G technology has become somewhat mystical, promising a brave new world of ultrafast applications and transforming cities, commerce and consumer applications in the process. As the country’s leading wireless companies prepare to invest millions of dollars in marketing, infrastructure and acquisitions, the race is on to win the hearts of American consumers and the approval of federal policymakers.

If the companies are not allowed to merge, for whatever reason, they will find themselves playing catch up to AT&T and Verizon, both of whom are well on the way to dominating the domestic 5G market.

Adonis Hoffman is chairman of Business in the Public Interest, Inc. He is a former chief of staff and senior legal advisor at the FCC and served in legal and policy positions in the U.S. House of Representatives. He has also served as an adjunct professor at Georgetown University. Follow him on Twitter @AdonisHoffman.