Next Hurdle for T-Mobile-Sprint Merger: Trump Administration

It took months of discussions spanning three continents and four public company boards before

T-Mobile US
Inc.


TMUS -6.22%

and

Sprint
Corp.


S -13.69%

signed the merger agreement that had eluded them for years.

Now comes the hard part.

The country’s No. 3 and No. 4 wireless carriers by subscribers must convince U.S. regulators and antitrust enforcers that their $26 billion union won’t hurt industry competition. It is a tough hurdle to clear. The companies aborted their last merger attempt in 2014 after government officials told executives they weren’t likely to approve the deal.

The market’s initial reaction showed investors’ worries about the risk of another thwarted merger, even under a Republican administration. Sprint shares fell 14% to $5.61 Monday, a discount to the price implied by the all-stock deal. Based on T-Mobile’s share price, which fell 6.2% on Monday, Sprint holders would get stock worth $6.21 for each Sprint share.

The deal would leave the U.S. with three national wireless network operators, a scenario that Obama administration regulators opposed. Antitrust experts have debated whether a stronger third player would drive more competition than a market with two giants—

AT&T
Inc.

and

Verizon Communications
Inc.

—and two smaller rivals, T-Mobile and Sprint, that have been driving down prices in recent years.

​The would-be partners said they don’t expect the proposed transaction to close until next year. It is subject to review by both the Federal Communications Commission, the country’s main telecom regulator, and antitrust officials at​the Justice Department. State officials will also vet the deal.

Sprint and T-Mobile do have some new arguments they lacked a few years ago. For one, they point out that there are more choices for wireless phone service. Cable companies like

Comcast
Corp.

and

Altice USA
Inc.

now sell their customers cellphone plans that compete for wireless customers, though they still rely on Sprint and Verizon to run their cellular network.

To make their case for the combination, the companies also highlighted plans to speed the rollout of fifth-generation, or 5G, networks in the U.S. and pledged to create U.S. jobs, two themes that align with Trump administration goals.

“We think the rise in the government interest in creating an attractive investment climate for 5G deployment improves the odds for the deal’s approval,” New Street Research analyst

Blair Levin

wrote in a recent note to clients.

That argument could factor into the FCC’s review because the agency is allowed to consider a deal’s public-interest merits rather than focusing solely on its competitive effects, according to former FCC commissioner

Robert McDowell,

a partner at law firm Cooley LLP, which has advised T-Mobile on the merger.

The five-member FCC has three Republicans and is now led by a GOP chairman,

Ajit Pai,

​who has relaxed some regulations on the industry.

“They realize that the clock is ticking and if they’re ever going to get the deal approved, they need it now,” Mr. McDowell said of the companies.

There are other signs Mr. Pai could hear out the chief executives’ arguments when they visit Washington this week. The FCC’s annual report last year found the wireless market had “effective competition” for the first time since 2009, a move that could help clear a path for the companies.

Neither the race with China to deploy 5G nor U.S. jobs would be relevant in a Justice Department antitrust review, in which the government studies whether a deal would lead to higher prices or otherwise harm competition.

AT&T declined to comment, while Verizon said it is focused on building its network “not just a proposal that may or may not happen in the next couple of years.” ​

In that regard, the merger review will provide another major test for the Trump administration and its Justice Department’s antitrust chief, Makan Delrahim. Mr. Delrahim has been more aggressive on enforcement than officials in other recent Republican administrations, suing to block AT&T’s planned acquisition of

Time Warner
Inc.

“The odds of approval are not great but neither are the costs of trying,” Mr. Levin said. “Meanwhile, the benefits are great. So we think it is worth the companies’ time and effort to try.”

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and Brent Kendall at brent.kendall@wsj.com

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