TR Daily DoJ, Five States Settle With T-Mobile-Sprint on Merger
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Friday, July 26, 2019

DoJ, Five States Settle With T-Mobile-Sprint on Merger

The Department of Justice announced today that it and five state attorneys general have reached a settlement with T-Mobile US, Inc., and Sprint Corp. regarding their proposed merger that requires the new T-Mobile to divest assets — including Sprint’s prepaid businesses, spectrum, towers, and retail operations — to enable Dish Network Corp., which is also a party to the consent decree, to become the fourth nationwide facilities-based wireless carrier.

The division filed a civil antitrust lawsuit to block the transaction, along with its proposed settlement, with the U.S. District Court for the District of Columbia this morning. The proposed consent decree, which would be in force for seven years, and the department’s competitive impact statement will be released for public comment for 60 days, pursuant to the Tunney Act, and will then be subject to approval by the court.

The state AGs of Nebraska, Kansas, Ohio, Oklahoma, and South Dakota joined DoJ in the settlement, which was announced this morning. However, T-Mobile and Sprint still face a federal lawsuit filed in New York by AGs from 13 states and the District of Columbia asking a court to block the deal (TR Daily, June 11).

Assistant Attorney General Makan Delrahim, who is in charge of the Justice Department’s Antitrust Division, told reporters today that his division’s discussions with the state AGs that filed their own lawsuit ended when they did so, as the filing terminated the agreement between his agency and those AGs regarding sharing information on the transaction. Asked whether the department plans to intervene in the state lawsuit, he said, “We don’t.” However, he said that DoJ was providing a “courtesy copy” of its filing to the court in New York, and that if the judge there “asks us for our views and wants us to get involved, … we’d be happy to provide our views.”

“With this merger and accompanying divestiture, we are expanding output significantly by ensuring that large amounts of currently unused or underused spectrum are made available to American consumers in the form of high quality 5G networks,” Mr. Delrahim said in a statement. “Today’s settlement will provide Dish with the assets and transitional services required to become a facilities-based mobile network operator that can provide a full range of mobile wireless services nationwide. I want to thank our state partners for joining us in this settlement.” Mr. Delrahim added, “In crafting this remedy, we are also mindful of the significant commitments T-Mobile, Sprint, and Dish have made to the Federal Communications Commission.”

“The Department and the Plaintiff States said that, without the divestiture, the proposed acquisition would eliminate competition between two of only four facilities-based suppliers of nationwide mobile wireless services,” DoJ said in a news release.

The agreement between the companies calls for the divestiture of Sprint’s prepaid business, including Boost Mobile, which has 9.3 million subscribers, Virgin Mobile, and Sprint prepaid, to Dish for about $1.4 billion.

“With this agreement, Boost Mobile, Virgin Mobile, and Sprint-branded prepaid customers, as well as new DISH wireless customers, will have full access to the legacy Sprint network and the New T-Mobile network in a phased approach,” according to a news release issued by T-Mobile and Sprint, saying the network access will last for seven years while Dish builds its own network. Mr. Delrahim told reporters that for the first three years, Dish’s access in terms of traffic would be uncapped, but that the access guarantee would be phased down after that, as Dish would presumably have begun to build out its own network.

“Access to the New T-Mobile network will be through an MVNO [mobile virtual network operator] arrangement, as well as through an Infrastructure MNO arrangement enabling roaming in certain areas until DISH’s 5G network is built out.” The news release also said that “New T-Mobile will offer standard transition services arrangements to DISH for up to three years following the close of the divestiture transaction.”

Mr. Delrahim told reporters that the new T-Mobile would also be required to extend all MVNO agreements with other providers until the end of the seven-year consent agreement period, “including the innovative MVNO deal with Altice in New York.”

In addition, he said that the consent agreement will require both the new T-Mobile and Dish to adopt eSIM technology, which will enable consumers to “more easily switch between wireless providers.”

“Sadly, in the U.S., eSIMs have not been widely adopted as it has in Europe,” he added.

And to ensure that parties “strictly adhere” to the merger conditions in the consent agreement, the new T-Mobile and Dish would each “face billions of dollars in fines if they do not live up to their commitments, he said.

Mr. Delrahim suggested that the merger and the actions required by the merger commitments could lead to “more competition than you have today,” and that at “the high end” of the wireless market, AT&T, Inc., and Verizon Communications, Inc., could face “competitive force.”

Asked whether the agreement places any restrictions on Dish’s ability to attract outside investment, Mr. Delrahim said, “We wanted to make sure we preserved the maximum ability for them to achieve success and take on strategic and financial partners.”

Asked about the possibility that Dish might not emerge as a serious competitor, Mr. Delrahim said that the job of antitrust enforcers is “to ensure [that] the incentives [are] there” for competition. “It’s not to pick winners and losers,” he added.

South Dakota AG Jason Ravnsborg, who participated in the briefing by conference call, said that currently, “we only have Sprint and T-Mobile [wireless coverage] to a limited degree,” and that he hopes the transaction will enable the new T-Mobile to fill in coverage gaps. “We’re also encouraged by having Dish potentially come on” as a competitor, he added. He noted that the states that joined the federal settlement agreement were Midwestern states with rural areas. “We do believe that using the assets of T-Mobile to work together, they’ll get coverage into those rural areas,” he said.

Asked whether the fact that Dish had been an outspoken opponent of the merger had influenced the decision to require the divestitures be made to Dish, Mr. Delrahim said, “No. Their spectrum did [influence the decision to include them in the divestiture].” He added that the Communications Workers of America “also opposed the transaction. There’s no provision requiring [the new T-Mobile] to be unionized.”

Dish has also agreed to acquire Sprint’s nationwide 800 megahertz spectrum portfolio for $3.6 billion, “once it is decommissioned as the New T-Mobile buildout occurs,” Mr. Delrahim told reporters. The transaction would be completed following the filing of an application with the FCC three years after the T-Mobile-Sprint deal closes.

The agreement also calls for T-Mobile and Sprint to make 20,000 cell sites and a minimum of 400 retail locations available to Dish.

“Following the closing of T-Mobile’s merger with Sprint and subsequent integration into the New T-Mobile, DISH will have the option to take on leases for certain cell sites and retail locations that are decommissioned by the New T-Mobile for five years following the closing of the divestiture transaction, subject to any assignment restrictions,” the T-Mobile-Sprint news release said.

“The companies have also committed to engage in good faith negotiations regarding the leasing of some or all of DISH’s 600 MHz spectrum to T-Mobile,” the companies’ news release added.

“The completion of the T-Mobile and Sprint combination remains subject to remaining regulatory approvals and certain other customary closing conditions. T-Mobile and Sprint expect to receive final federal regulatory approval in Q3 and currently anticipate that the merger will be permitted to close in the second half of 2019,” according to the companies’ news release.

“Our goal was to ensure that the DOJ’s concerns were addressed while enabling us to deliver on every aspect of the synergies we promised to unlock… and we did it,” said T-Mobile Chief Executive Officer John Legere. “It may have taken longer than expected by some, but today’s results are a win-win for everyone involved. We cannot wait to get to work bringing this pro-consumer, pro-competition New T-Mobile 5G network to U.S. customers from coast to coast!”

“This is an important day for our country and, most important, American consumers and businesses,” said Sprint Executive Chairman Marcelo Claure. “Today’s clearance from the DOJ, along with our anticipated approval from the FCC, will allow the U.S. to fiercely compete for 5G leadership. We plan to build one of the world’s most advanced 5G networks, which will massively revolutionize the way consumers and businesses use their connected devices to enhance their daily lives. The powerful combination of 5G, artificial intelligence and the Internet of Things will unleash endless possibilities.”

Dish co-founder and Chairman Charlie Ergen also hailed today’s announcement.

“These developments are the fulfillment of more than two decades’ worth of work and more than $21 billion in spectrum investments intended to transform DISH into a connectivity company,” he said. “Taken together, these opportunities will set the stage for our entry as the nation’s fourth facilities-based wireless competitor and accelerate our work to launch the country’s first standalone 5G broadband network.”

Dish said in a news release that it “has committed to new buildout schedules associated with the company’s 600 MHz, AWS-4, 700 MHz E Block and AWS H Block licenses. In addition, DISH has committed to deploy 5G Broadband Service utilizing those licenses. The new commitments require DISH to use its spectrum to deploy a nationwide 5G broadband network covering at least 70 percent of the U.S. population by June 14, 2023. If DISH fails to meet its 5G deployment deadlines, DISH will make voluntary contributions to the U.S. Treasury of up to $2.2 billion.”

Dish currently faces a 2020 build-out deadline for its AWS-4 and 700 MHz E-block licenses and a 2022 deadline for the AWS H-block.

Dish could “compete with existing wireless providers rather than just being a white-label provider,” Mr. Delrahim said during a news conference this morning. “Dish has ample but unused spectrum,” Mr. Delrahim said, adding that Dish has “committed to aggressively deploying it.”

The FCC has yet to adopt an order approving the merger, but FCC Chairman Ajit Pai and his Republican colleagues, Commissioners Mike O’Rielly and Brendan Carr, indicated in May that they would support it after T-Mobile and Sprint offered additional commitments on 5G deployment and the divestiture of Sprint’s Boost Mobile prepaid brand (TR Daily, May 20). It is highly unusual for FCC Commissioners to indicate support for a merger before they consider an order presented to them.

“I am pleased that the U.S. Department of Justice has reached a settlement with T-Mobile and Sprint,” Mr. Pai said in a statement today. “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. In addition, the transaction has garnered bipartisan support, including from Governor Laura Kelly (D-KS), Congresswoman Anna Eshoo (D-CA), and former FCC Commissioner Mignon Clyburn.

“Because of this transaction’s potential to help close the digital divide in rural America and maintain our nation’s leadership in 5G, as well as the commitments made by T-Mobile and Sprint to the FCC, I plan to present my colleagues soon with a draft order, consistent with the Department’s filings, favorably resolving the FCC’s review of the transaction,” Mr. Pai added.

Mr. Carr tweeted, “Today marks another big win for U.S. leadership in 5G. DOJ’s decision on Sprint / T-Mobile clears the path for an accelerated build out of 5G to 99% of Americans.”

In a statement, Democratic FCC Commissioner Jessica Rosenworcel said, “Today the Department of Justice gave its blessing to the largest wireless merger in history. I remain skeptical that this combination is good for consumers, good for competition, or good for the economy. Before the FCC votes on this new deal, the public should have the opportunity to weigh in and comment. Too much here has been done behind closed doors.”

In a tweet, Democratic FCC Commissioner Geoffrey Starks said, “The structure of the transaction has changed. Accordingly, as I told the Senate last month, based on FCC precedent, this deal should be put out for public comment before @FCC acts.”

Mr. O’Rielly had no comment today on the DoJ settlement.

During a conference call with reporters this afternoon, an FCC official argued that there is no need for the FCC to open a comment period on provisions of the DoJ settlement with T-Mobile and Sprint, noting that parties can submit comments with the court. The official also said that parties have had since May to comment on earlier commitments offered by T-Mobile and Sprint.

The official offered no specific timing on when a draft FCC order would be circulated to Commissioners, saying that agency staffers are working hard to complete it but that they had to wait until a settlement was announced. The official also said that agency officials hope the order can be adopted on circulation before the agenda is set for the FCC’s Sept. 26 meeting.

The official also stressed that the agreement reached with Dish would provide it with MVNO terms that are more favorable than T-Mobile and Dish currently offer to other MVNO partners, giving Dish a better chance to compete with T-Mobile.

Opponents of the merger, including smaller wireless carriers, public interest groups, a union, and Democratic members of Congress, have contended that the deal would hurt consumers and competition by reducing the number of nationwide wireless carriers from four to three, resulting in higher prices, fewer choices, and the loss of 30,000 jobs from the merging companies. Some critics of the merger voiced concerns today, including whether Dish will be an effective, fourth nationwide competitor.

But T-Mobile and Sprint have argued that the transaction was necessary to enable them to compete with the two largest wireless carriers — Verizon and AT&T — and that the economies of scale it would enable would allow them to offer the highest-quality 5G network, enhanced rural coverage, and lower prices. —Paul Kirby, [email protected], and Lynn Stanton, [email protected]

MainStory: MergersAntitrust WirelessDeployment FCC FederalNews

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