Sprint Corp. and T-Mobile Inc.’s $26 billion merger will face tough regulatory review even in the wake of the Justice Department’s loss in its suit to block AT&T Inc.’s purchase of Time Warner Inc., antitrust attorneys said.
It’s a fairly simple “horizontal” deal, combining the third-largest wireless carrier, T-Mobile, with the fourth, Sprint. That reduction in market players violates a key economic principle — four is better than three — that has been deployed in telecom antitrust reviews in the past.
“There is already a lot of thinking and scrutiny of this type of market,” Public Knowledge President Gene Kimmelman told Bloomberg Law. Sprint called off plans to merge with T-Mobile less than a year ago, saying the two could not reach favorable terms.
The revised merger now will face reviews by both the Federal Communications Commission and either the DOJ or the Federal Trade Commission. The DOJ is the likely choice for the antitrust review because it has past experience looking at deals in the industry. The FCC will review the deal to see whether it’s in the public interest.
Coming on the heels of the high-profile AT&T-Time Warner case, the government’s review of Sprint-T-Mobile’s pending transaction will be notably less complicated, Christopher Sagers, an antitrust law professor at Cleveland State University, told Bloomberg Law.
The antitrust regulators can review the Sprint-T-Mobile transaction squarely within the telecommunications market, an easy analysis, rather than look for overlapping markets in separate sectors, as they were forced to do in AT&T-Time Warner.
“The only consequence that AT&T could have, it seems to me, is that after the government’s stinging loss in AT&T, they may be feeling a little apprehensive about taking on any big, further, litigated challenges for the time being,” Sagers said.
“I don’t think the recent events change the antitrust analytics,” Kimmelman said.
Sprint CEO Marcelo Claure and T-Mobile CEO John Legere are slated to defend their merger June 27 before a Senate Judiciary Committee subcommittee that oversees antitrust issues. Sen. Amy Klobuchar (D-Minn.), ranking member of the subcommittee, penned a letter May 7 with other Democrats urging both the FCC and DOJ to carefully review Sprint and T-Mobile’s merger and focus “on the benefits that can only be achieved as a direct result of the merger.”
They expressed concern that both companies would curb near-term investments and innovation to focus on the merger review process instead.
Since announcing the deal in April, Sprint and T-Mobile said their merger is necessary to bring about 5G, the next generation of wireless technology. Combining the two companies will give the merged entity the network and spectrum capacity necessary to bring America front and center in the race to 5G, they said.
In light of the AT&T-Time Warner decision, Sprint and T-Mobile may feel they have a better argument for why they need to combine and create a bigger telecom network, said Kimmelman, who is testifying at the hearing. “It might change the environmental favor around the transactions as parties might argue that since AT&T could get bigger, Sprint and T-Mobile should be able to, as well,” he said.
But the 5G pitch alone won’t solve all the antitrust concerns with the deal, he told Bloomberg Law. “The big question is if it is truly necessary to combine the third and fourth carriers in order to continue to get meaningful network investment to improve quality, speed, and competition.”
Trimming To Three
The combination of Sprint and T-Mobile would reduce the wireless carrier market from four providers to three. Such a consolidation goes against an Obama-era DOJ principle that at least four wireless carriers are needed in the U.S. market to ensure competitiveness.
Makan Delrahim, antitrust chief at Justice Department, wouldn’t explicitly endorse that view this month, stating, “I’m not smart enough to figure out any magical number.” Delrahim added that he doesn’t prejudge a transaction solely on how it affects the number of marketplace competitors.
But consolidating the wireless marketplace to only three key players is a key antitrust concept that may dominate the subcommittee’s hearing and the regulators’ review, Kimmelman said.
“It will be hard to overcome that logical assessment that is baked into the existing antitrust precedent,” he said. “It’s a huge uphill battle here to overcome, even with the rosy picture of 5G.”