Sprint’s merger with T-Mobile clears Justice Department hurdle after deal with states
Antitrust regulators with the Justice Department will not stand in the way of a $26.5 billion merger of T-Mobile and Sprint, a major and nearly final barrier crossed on the path to combining the third- and fourth-largest wireless carriers 14 months after the idea was proposed.
The Justice Department, which evaluates corporate mergers on the basis of whether a deal harms consumers by stifling competition, had its concerns allayed by concessions from the two companies — namely, an agreement to sell $5 billion in wireless and spectrum assets to Dish Network in an attempt to create a new, viable competitor to the new T-Mobile, Verizon and AT&T.
In a statement Friday, Justice Department officials said under a settlement with the two companies and five states, including Kansas, Sprint has to divest itself of its prepaid businesses in Boost Mobile and Virgin Mobile to Dish Network, which is based in Colorado.
The two companies also have to provide Dish access to 20,000 cell sites and hundreds of retail locations, the Justice Department said. Dish can also use T-Mobile’s network for seven years, giving the satellite television provider time to build out its own fifth generation, or 5G, wireless network.
Assistant U.S. Attorney General Makan Delrahim told reporters in Washington, D.C., that this latest development was a “historic settlement” that protects competition and that the divestiture to Dish sets the newcomer to the wireless industry as a “disruptive force.”
“Without the remedy, it would have harmed consumers by raising the prices of mobile wireless services,” said Delrahim, who leads the Justice Department’s antitrust division, at a press conference announcing the settlement.
He said the Justice Department would have sued to block the deal if the two companies had not agreed to the settlement terms.
On Friday, the Justice Department and attorneys general with five states, including Kansas Attorney General Derek Schmidt, filed a civil antitrust lawsuit in federal court in Washington. They simultaneously filed a settlement with Sprint and T-Mobile, the terms of which will have to be approved by a judge.
Schmidt said his office studied the merger and concluded it would benefit Kansans by expanding wireless coverage and speeding up the deployment of 5G technology.
“I am comfortable with assurances from T-Mobile, Sprint and Softbank leadership of the merged company’s commitment to Kansas and to investing in our state to improve services and expand competition that will benefit Kansas consumers,” Schmidt said.
The new T-Mobile will face billions in fines if it doesn’t live up to the obligations under its agreement with the Justice Department, Delrahim said.
But Friday’s lawsuit is separate from one filed in June be several other state attorneys general seeking to block the deal, citing harm to consumers. That lawsuit was filed before the nature of Dish’s involvement in the deal was publicly known.
New York Attorney General Letitia James, who is taking the lead with the ongoing effort to block the merger, said Friday her efforts would continue.
“Dish has never owned any kind of mobile wireless business,” James said. “Dish has no experience building or operating a nationwide mobile wireless network. Yet, the DOJ claims this deal will create a fourth national network operator that will step into Sprint’s shoes and preserve a competitive market for consumers.”
James said the merger can’t close until the state litigation is resolved. A trial had been set for October.
Delrahim said the Justice Department would send its settlement with the companies to the federal judge presiding over that case, but that the department had no plans to intervene in that case, which was filed independently by New York and other states.
“I don’t know what impact this will have on the litigation. That will be up to the judge, but I assume this will have an impact,” he said.
Delrahim said Sprint and T-Mobile engaged with regulators with their merger proposal, drawing a contrast to a failed bid by AT&T to buy T-Mobile in 2011 for $39 billion, a transaction that both companies abandoned after the Justice Department signaled misgivings about the deal.
The Justice Department’s approval follows indications by the Federal Communications Commission that it, too, agrees with Sprint’s tie-up with T-Mobile, signifying that no federal regulators stand in the way of the all-stock transaction.
Both companies believe the merger was the only way either one could compete with its larger rivals.
Together, T-Mobile and Sprint said they could more quickly roll out a 5G wireless network to enable wireless customers to access faster download speeds than what’s broadly available. The companies also pledged to spread their 5G network deep into rural areas while also offering a commitment to hold steady on customer rates for three years, concessions that earned the favor of an apparent majority of FCC commissioners.
South Dakota Attorney General Jason Ravnsborg told reporters that the merger will provide more rural wireless coverage, while noting that the states involved in Friday’s settlement are from the Midwest, including his own state, Nebraska, Oklahoma and Ohio
FCC chairman Ajit Pai hailed the Justice Department’s settlement on Friday.
“The commitments made to the FCC by T-Mobile and Sprint to deploy a 5G network that would cover 99% of the American people, along with the measures outlined in the Department’s consent decree, will advance U.S. leadership in 5G and protect competition,” Pai said in a statement.
The merger itself, as well as the inclusion of Dish as a wireless operator-in-waiting, was greeted with derision by critics of the deal.
Phillip Berenbroick, public policy counsel for the communications advocacy group Public Knowledge, took the Justice Department’s insistence that Dish become part of the deal as an acknowledgment that letting four wireless companies shrink to three was bad for consumers.
“The bad news is that rather than rejecting the deal, the Department of Justice has proposed a risky bet on creating a new facilities-based competitor,” Berenbroick said
Senior officials with the FCC said that Dish has committed to a number of terms, including benchmarks for building out a network. In a letter to the FCC, Dish said it would have a network broad enough to cover 70 percent of the United States population with download speeds of at least 35 megabits per second by 2023.
FCC officials said Dish would face “serious financial penalties” — up to $2.2 billion — for failing to meet build-out commitments.
In Dish’s letter to the FCC, it described the $2.2 billion as “voluntary contributions.”
“The so-called penalties that would be imposed on the parties are woefully inadequate and will just become a cost of doing business to get this Frankenstein match-up of a deal done,” said Carrie Bennet, general counsel for the Rural Wireless Association, a trade group representing rural carriers.
The Communication Workers of America, a labor union, said the arrangement with Dish makes it a customer of T-Mobile, not a competitor.
“The announced divestiture deal with DISH does not save these jobs and does not remedy the fundamental, anti-competitive nature of the merger,” said CWA president Chris Shelton.
Sprint executives had said the Overland Park-based wireless carrier stood little chance of continuing on its own, owing to a substantial debt load and continued downsizing that stood in the way of making meaningful investments in building out a next-generation wireless network.
“The only path forward for Sprint is a merger with T-Mobile,” said Tim Cowden, president and chief executive of the Kansas City Area Development Council, which lobbied T-Mobile to retain a local presence following the merger. “So we believe that Kansas City and the Overland Park campus offers the new T-mobile an amazing opportunity to build a world-class business supported by a deep and talented workforce.”
Sen. Jerry Moran, R-Kansas, who is chairman of the Senate Commerce Subcommittee on Consumer Protection, applauded public commitments by both companies to continue its presence in Overland Park.
“DOJ’s approval of the transaction between Sprint and T-Mobile is a positive step forward. The economic growth, workforce development and employment opportunities that Sprint has created in our region have contributed to Kansas City’s leadership role in telecommunications and technology sectors,” he said in a statement.
The combined company will retain the T-Mobile brand and have a primary headquarters in suburban Seattle. That means that the Sprint brand, one of Kansas City’s largest and most visible corporations, will fade away.
And while top executives have promised to keep a secondary headquarters in Overland Park, where Sprint built a large corporate office campus that opened in 2001, experts are split on if, or how long, the new T-Mobile will maintain a sustained and sizable presence in the Kansas City region.
Delrahim said his office had no information on the settlement’s impact on jobs in Overland Park.
Rep. Sharice Davids, the Democrat whose district includes the Sprint campus, said in a statement that her main concern with the merger remains whether the jobs in Kansas are prioritized.
Currently, there are about 6,000 Sprint employees in Overland Park, plus another 1,500 contractors. That’s about half the number of employees that the Sprint campus was designed for when it opened 18 years ago. Sprint recently sold the 190-acre campus near 119th Street and Nall Avenue to Wichita’s Occidental Management for $250.9 million.
As part of the transaction, Sprint signed a 10-year lease to occupy four buildings on the campus, according to an analysis by investment research firm Moody’s. The agreement does not include an option to cancel, but does allow Sprint to take over more space if it elects to. The wireless provider has also pledged to spend $25 million upgrading its campus. The company just unveiled a total revamp of the main executive building on campus.
Stock prices for both Sprint and T-Mobile shot up this week after reports emerged that the Justice Department would approve the union.
This story was originally published July 26, 2019 at 10:30 AM.
