TR Daily FCC Releases Order Approving T-Mobile-Sprint Merger
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Tuesday, November 5, 2019

FCC Releases Order Approving T-Mobile-Sprint Merger

The FCC today finally released a memorandum opinion and order, declaratory ruling, and order of proposed modification signing off by a 3-2 vote on T-Mobile US, Inc.’s proposed acquisition of Sprint Corp.

Voting on the item was completed last month when Democratic Commissioners Jessica Rosenworcel and Geoffrey Starks registered their dissents (TR Daily, Oct. 16).

While T-Mobile and Sprint welcomed the release of the FCC order today, the carriers still face challenges to closing on the deal.

The companies face a federal lawsuit brought by state attorneys general seeking to block the transaction (TR Daily, June 11). Also, a settlement the companies reached last summer (TR Daily, July 26) with the U.S. Department of Justice and several states, which requires the divestiture of certain assets to Dish Network Corp., remains pending before the U.S. District Court for the District of Columbia, where a number of parties recently filed oppositions to the proposed settlement as part of a Tunney Act review (TR Daily, Oct. 15). State regulatory review of the transaction also has not yet been completed: the California Public Utilities Commission has yet to sign off.

“The Commission found that the transaction will help close the digital divide and advance United States leadership in 5G, the next generation of wireless connectivity,” the agency noted in a news release today on the 308-page order, which was adopted Oct. 16 in WT docket 18-197. “Specifically, T-Mobile and Sprint have committed within three years to deploy 5G service to cover 97% of the American people, and within six years to reach 99% of all Americans. This commitment includes deploying 5G service to cover 85% of rural Americans within three years and 90% of rural Americans within six years.

“The parties also pledged that within six years, 90% of Americans would have access to mobile service with speeds of at least 100 Mbps and 99% of Americans would have access to speeds of at least 50 Mbps. This includes two-thirds of rural Americans having access to mobile service with speeds of at least 100 Mbps, and 90% of rural Americans having access to speeds of at least 50 Mbps,” the news release added.

“The Commission conditioned its approval of the transaction on the parties fulfilling these commitments. Compliance with these commitments will be verified by rigorous drive-testing, overseen by an independent third party and subject to Commission oversight, to ensure that the service Americans receive will be what the parties have promised,” the news release stressed. “And in order to ensure that these commitments are met, the parties will be required to make payments that could reach over two billion dollars if they do not meet their commitments within six years. Moreover, the parties will be required to make additional payments until they have fulfilled their commitments.”

The news release noted that a majority of the Commissioners “also concluded that the transaction, as conditioned, would not harm competition. Specifically, the Commission found that the transaction would enhance competition in rural America and among quality-conscious consumers along with strengthening competition in the home broadband and enterprise markets. Moreover, the Commission found that the parties’ divestiture of Boost Mobile, Sprint’s leading prepaid brand, would address the potential for reduced competition for price-conscious consumers in urban areas.”

In connection with the merger, the item released today proposes “modifications to construction deadlines related to DISH licenses,” the news release pointed out. “The proposed DISH construction deadline modifications would facilitate the implementation of certain measures in the Department of Justice’s consent decree in connection with the transaction that was announced in July, where DISH pledged to become a new entrant into the wireless industry, offering cutting-edge 5G service to over two-thirds of Americans within four years.”

“We do not entirely agree, however, with the Applicants’ competition analysis,” the FCC said in the item. “The Applicants claim that, even without any conditions, the network improvements resulting from their transaction would eliminate any potential for a lessening of competition. However, our analysis of potential harms to competition finds that, absent conditions, the evidence of the transaction’s impact on competition is mixed. On the one hand, we find that, according to our static merger simulation model, the unconditioned transaction will create upward pricing pressure. In particular, the Applicants compete closely with one another through their prepaid brands, Boost Mobile and Metro, and the transaction would eliminate that competition.

“On the other hand, we agree with the Applicants that the transaction will create quality and dynamic competitive benefits that are not incorporated into the static analysis and that will counteract the upward pricing pressure,” the FCC added. “Wireless consumers depend on competition to motivate innovation and, in turn, advance the rapid expansion of consumer welfare that the industry has already delivered and will deliver in the future. While we analyze a traditional relevant product market for the provision of mobile telephony/broadband services for purposes of the Commission’s initial HHI [Herfindahl-Hirschman Index] screen, we recognize that the nature of those services is continually evolving, and this phenomenon will only increase as service providers deploy 5G. Thus, within the mobile telephony/broadband services market, what consumers buy and use changes and improves over time, with corresponding benefits throughout the American economy. By significantly increasing the network quality available from either T-Mobile or Sprint and expanding overall network capacity, this transaction will further drive this critically important competitive dynamic into the new 5G wireless world, strengthening incentives for market participants to innovate.”

The item added, “At the end of the day, we believe that it is likely, even without conditions, that these competitive benefits will outweigh pricing pressure in certain areas, such as rural markets, and in certain segments of the market, such as consumers who are primarily quality-conscious. However, we are not confident that this will be the case across the board. In particular, based on the record, we are concerned about the impact of an unconditioned transaction on consumers in densely-populated areas who are primarily concerned about cost. Accordingly, we require, as a condition of our approval, that the Applicants fulfill a series of commitments to address the potential for lost price competition, such as the divestiture of Boost Mobile. These conditions eliminate the concerns otherwise identified in our review.”

The item also said that “upon DISH’s purchase of Boost Mobile, granting the requests for extension of time to complete construction, as conditioned, would serve the public interest, convenience, and necessity. To better enable DISH to construct a 5G broadband network, we also propose in that scenario to modify certain of DISH’s licenses pursuant to our authority under section 316 of the Communications Act. We expect that on the current record these modifications will serve the public interest. However, we direct WTB to make a final public interest determination following the protest period in accordance with the procedures in section 316. These extensions, commitments, and proposed modifications will not take effect unless and until consummation of the Boost Mobile divestiture by DISH. Moreover, the proposed modifications will not become final until adequate time for protest has passed under our rules.

“We do not address in this MO&O any license changes of control related to DISH, such as those contemplated by the DOJ Proposed Final Judgment. The transfer of 800 MHz licenses and any leasing of 600 MHz spectrum contemplated therein will be addressed in due course following submission of appropriate applications and in accordance with the Communications Act and Commission rules,” the FCC added. “Similarly, we do not herein address DISH’s ability to offer international service pursuant to section 214.”

“Regarding DISH’s request that we modify its AWS-4, Lower 700 MHz E Block, and AWS H Block licenses to extend and align their license terms and also to adjust the final and interim construction deadlines for DISH’s 600 MHz licenses, we adopt an order of proposed modification. Pursuant to our authority under section 316 of the Communications Act and section 1.87 of our rules, we propose to modify DISH’s licenses by accelerating the construction deadline for DISH’s 600 MHz licenses until June 14, 2025, while removing the interim construction deadline, and extending the terms of DISH’s AWS-4, AWS H Block, and Lower 700 MHz E Block licenses until June 14, 2023. DISH has indicated that it will not protest these proposed license modifications, necessary to effectuate a portion of the commitments DISH has made. However, both section 316 of the Communications Act and section 1.87 of our rules provide that any other licensee or permittee who believes that its license or permit would be modified by the proposed action may also protest the proposed action. Any such protest must be filed with the Commission within 30 days of the date of release of this Order of Proposed Modification.”

The FCC said it would impose on Dish various commitments it has made in exchange for the relief it requested.

FCC Chairman Ajit Pai, who like his Republican colleagues expressed support for the merger before a draft item was even written (TR Daily May 20), said that “this transaction is in the public interest. It would bring the benefits of the next generation of wireless technology to American consumers and advance American leadership in 5G. It would help millions in rural America benefit from high-speed 5G mobile broadband service. And it would promote competition. That’s why both the FCC and the Department of Justice have approved this transaction, and that’s why I hope that it is consummated soon.”

Commissioner Mike O’Rielly said that he believes “that there is no magical number of entities that make a marketplace competitive. It would be nice if it were that simple, but you also need to take into consideration the strength of the participants, the structure of the market, and the future demands placed on networks and providers as they seek to respond to consumer demand. Those who solely look at a number are taking the easy way out. This merger will lead to a more competitive marketplace, hasten the delivery of next-generation services, and improve the combined company’s service quality and network reach beyond what either company can do on its own. Thus, I look forward to the new company meeting its commitments and bringing its fervent competitive style to bear on the market for the betterment of the American consumer.”

But he said that “there are portions of today’s item and our merger reviews, in general, that are woefully out of date and need to be improved. That said, I acknowledge that these issues arise because of Commission precedent and policy that predate the current administration.”

For example, he said, “the Commission’s merger review process still takes a very siloed view of competition. I frequently raise that the Commission and others, including the Department of Justice (DOJ), need to update and modernize their requisite market definitions. Even if you look solely at the myopic and out-of-date mobile broadband and telephony market used in this item, there isn’t much consideration given to the cable offerings, unlicensed systems, or satellite services, among others. To act as if these services are not substitutes for one another is turning a blind eye to reality.”

“By approving this merger, a true third national competitor can be created, pressing the two market leaders in wireless like they have not been pressed before,” Commissioner Brendan Carr said. “And it prepares the wireless industry to advance not two but three contenders in the battle with other companies from other industries to serve Americans’ connectivity needs. That is the intense competition that best serves the public interest. And so I strongly support this Order’s approval of the transaction.”

But Commissioners Rosenworcel and Starks blasted the deal.

“American consumers are savvy. They know what less competition looks like. This transaction makes the wireless market look more like the one they know with airlines and pharmaceuticals. When Washington blesses consolidation like this consumers routinely wind up with higher prices and lower quality services,” Ms. Rosenworcel said. “It’s not fair. Moreover, it’s not smart. We are at an important point in the development of wireless technology, on the cusp of a new world of 5G wireless services connecting so much more in the world around us, and this decision denies that new world the powerful fire of competitive pressure to help ensure deployment to everyone, everywhere. This is a shame.

“However, all is not lost,” she added. “While Washington has failed to perform a fair review and stop this merger, states are stepping forward. A bipartisan group of attorneys general from 15 states and the District of Columbia are now suing to halt this transaction. They have determined that this merger results in an unacceptable loss of competition and that the remedies proposed fail to fix the harms that will befall wireless consumers. These state officials understand what Washington apparently does not: with less competition rates rise and innovation falls. All the evidence demonstrates this is true. Consumers should hope these state officials succeed. Count me among them.”

“Despite claims that 5G hangs in the balance, I find that this merger is fundamentally no different than past attempts to consolidate the wireless market that the Justice Department and the FCC have rejected,” Mr. Starks said. “In this respect, today’s decision represents an inflection point in the history of mobile wireless competition. In 2003, there were eight major national wireless carriers, with the largest being Verizon with a 23.4% market share. Since then, the large carriers have steadily acquired smaller wireless carriers while shunting off less-profitable wireline assets. Consummation of this merger will leave only three national facilities-based wireless carriers, each with more market share than even the largest carrier in 2003.

“In short, I believe that T-Mobile and Sprint have not proven that their merger will benefit the public interest. Vague promises do not change what was true when this deal was first proposed and what remains true today – the harms from this merger are not overcome by any condition imposed in the majority’s order,” Mr. Starks added. “While I hope for the sake of consumers that I am wrong, I fear that we will one day look back at this decision and recognize it as a moment that forever changed the U.S. wireless industry, and not for the better.”

T-Mobile officials welcomed the release of the FCC merger order today. “New T-Mobile officially has FCC regulatory approval! Thanks to the @FCC for diligent review & for seeing the benefits of #NewTMobile! Some more work to do, but we’re so excited for what we'll bring to America!” T-Mobile Chief Executive Officer John Legere tweeted. Sprint said that it is “currently reviewing the order but are pleased with the FCC’s approval and that this stage of the review process is complete.”

Jeff Blum, senior vice president-public policy and government affairs for Dish, said, “The framework established by the FCC will facilitate and accelerate DISH’s entry as a new nationwide facilities-based provider. Our goal is to spur competition and drive America’s leadership in 5G, all to the benefit of American consumers and industry. We share the Commission’s 5G goals and are prepared to transform the U.S. wireless market by building the nation’s first virtualized standalone 5G network. This will spark investment, deliver value to consumers and enable the technologies of tomorrow.”

Two former FCC Commissioners who advised T-Mobile on the deal also praised the FCC’s action.

Former Commissioner Mignon Clyburn said, “Today's order from the FCC approving the T-Mobile-Sprint merger is a critical milestone on the path to 5G for all. I commend the Commission and Chairman Pai for their commitment to a thorough review process and commitment to inclusive 5G deployment. I urge the state attorneys general attempting to block the merger to reconsider their opposition in light of the public interest benefits confirmed by the FCC, especially the new company's commitments to helping to close the digital divide for underserved communities across America.”

Former Commissioner Robert McDowell said, “I congratulate the Federal Communications Commission on the release of its order to approve the T-Mobile-Sprint merger. I applaud the leadership of Chairman Pai and Commissioners O'Rielly and Carr for their thorough analysis during an exceedingly rigorous review process. The FCC and Department of Justice have now confirmed the benefits of the transaction for American 5G leadership, competition against the cable industry, and strengthened rural broadband deployment. It is time for the state attorneys general trying to block this constructive deal to recognize the benefits this combination brings to the people of their states and abandon their opposition. I am confident their efforts to protect the status quo from the creation of a stronger competitor will otherwise fail in court, and that American consumers will soon experience the enormous benefits New T-Mobile can bring to the marketplace and the country at large."

But critics of the transaction reiterated their complaints, while expressing hope that the state AGs are successful in their challenge of the merger.

“While I am still reviewing the decision, the dissenting statements of the Democratic commissioners raise troubling issues about the process undertaken at the FCC for drafting this approval order,” said House Energy and Commerce Committee Chairman Frank Pallone Jr. (D.,N.J.). “I plan to follow up with the Commission to get to the bottom of these allegations and better understand whether – and to what extent – the underlying analysis of the expert staff at the FCC was overruled during the FCC’s review of this transaction.”

“I have repeatedly raised serious antitrust concerns about the harmful effects of merging T-Mobile and Sprint, two of the four remaining nationwide wireless carriers,” said Sen. Amy Klobuchar (D., Minn.), ranking member of the Senate antitrust, competition policy, and consumer rights subcommittee. “Overwhelming evidence shows that approving this merger will almost certainly hurt competition and consumers and lead to higher prices, worse service, and less innovation. I am hopeful that the lawsuit brought by over a dozen state attorneys general to block the merger will be successful.”

Phillip Berenbroick, policy director for Public Knowledge, said, “After nearly a year-and-a-half of review, it is disappointing that the FCC approved the proposed merger of T-Mobile and Sprint. The data and evidence in the FCC’s merger docket, the lived experience of countries that have consolidated down to three wireless providers, and common sense all indicate that allowing more consolidation in the wireless market is extremely likely to lead to higher prices for consumers, less aggressive competition, reduced levels of innovation in the wireless market, and lower service quality for customers. In short, letting the national market go from four players to three would create a tight oligopoly that would keep prices high -- and new competitors out.”

Debbie Goldman, research and telecommunications policy director for the Communications Workers of America, said, “The FCC’s review process governing the T-Mobile/Sprint transaction has been fundamentally flawed, lacking in transparency and failing to adhere to existing FCC rules and precedent. CWA’s primary objections to this merger remain focused on its substantial public interest harm to competition, leading to higher prices and the loss of as many as 30,000 jobs.” She added that “the pending state attorneys general lawsuit seeking to block the proposed merger is in a strong position to protect consumers and workers from this anti-competitive transaction.”

Free Press Campaign Manager Nilda Muhr said, “Chairman Pai has finally gotten an FCC vote on his predetermined conclusion that the T-Mobile/Sprint merger benefits wireless consumers. He decided months ago that he would approve the deal, even as FCC staff were still conducting their review. Given the harmful impacts of this merger and the shady manner in which the FCC’s approval was reached behind closed doors, the public should have had the opportunity to weigh in and comment before the full agency voted. But Pai’s FCC doesn’t care about public input. The good news is that attorneys general from more than a dozen states and the District of Columbia have joined a lawsuit to block the merger. Free Press looks forward to the state AGs trying their case in front of an impartial court. And we’ll keep fighting to stop this dangerous merger from being realized.”

“T-Mobile’s acquisition of Sprint already threatened to dramatically reduce market competition and drive up bills for consumers as a result. But today’s approval by the Federal Communications Commission of the Justice Department’s settlement represents the culmination of two agencies’ overwrought attempt to see this merger through,” said Matt Buck, reporter and researcher at the Open Markets Institute. “Not only did Republican commissioners convey full support for the merger before they’d even read the DOJ’s settlement, but the FCC also didn’t put out the settlement for public comment. Nor did the FCC even stop to think that it should pause its review after news broke that Sprint may have defrauded the government out of tens of millions of dollars by exaggerating how many low-income people it served. While the FCC’s rubber-stamp of the merger is disappointing but not surprising, the group of states challenging the merger in New York next month represents our best hope of protecting our markets and making up for this massive enforcement failure.” —Paul Kirby, [email protected]

MainStory: FCC FederalNews MergersAntitrust WirelessDeployment

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