TR Daily T-Mobile, Sprint’s Merger Commitments Win FCC Majority Support
Monday, May 20, 2019

T-Mobile, Sprint’s Merger Commitments Win FCC Majority Support

The FCC’s three Republican Commissioners today indicated that the commitments offered by T-Mobile US, Inc., and Sprint Corp. this morning — including those concerning 5G and in-home wireless broadband buildouts and divestiture of T-Mobile’s Boost Mobile prepaid service unit along with a previous offer not to raise prices for three years – are sufficient to win their support for regulatory approval of the merger of the nation’s third- and fourth-largest wireless carriers.

One of the two remaining Commissioners, Democrat Jessica Rosenworcel, expressed doubts that the proposed commitments were sufficient to ensure the merger would be in the public interest, and competitive carriers, consumer advocates, labor interests, and congressional Democrats who have opposed the transaction since the two companies announced their agreement last year (TR Daily, April 30, 2018) continued to voice criticism in the wake of the new commitments.

During a conference call with reporters this morning, senior FCC officials said that FCC Chairman Ajit Pai plans to circulate an order to approve the merger “in the coming weeks.” The transaction would still be subject to the ongoing review of the Justice Department under federal antitrust law. Bloomberg this afternoon reported that an anonymous source familiar with the Justice Department’s review of the proposed merger said that the department is “leaning against” signing off on the deal.

Laying out their commitment regarding 5G network buildout in a filing with the FCC in WT docket 18-197 this morning, the substance of which was also filed with the Securities and Exchange Commission, T-Mobile and Sprint said, “The record conclusively demonstrates that New T-Mobile’s 5G network will be capable of using the combined low-band and mid-band spectrum of T-Mobile and Sprint to provide virtually ubiquitous and deep 5G coverage across the country, including in rural areas. Within three years of the merger’s close, this unique combination of complementary spectrum will enable New T-Mobile to provide fiber-like speeds to hundreds of millions of Americans and deliver average speeds of over 150 Mbps [megabits per second] and peak speeds of 1.6 Gbps [gigabits per second]. Within six years of the merger’s close, average and peak speeds will have surged to 450 Mbps and 4.2 Gbps, respectively.”

They committed to low-band 5G coverage of areas in which at least 97% of the U.S. population resides and mid-band 5G coverage of areas within which at least 75% of the U.S. population resides within three years of closing the merger. By that time, at least 75% of the U.S. population would have access to download speeds of at least 50 Mbps, and 63% would have access to download speeds of at least 100 Mbps, the carriers said.

Within six years, low-band 5G coverage would reach at least 99% of the U.S. population and mid-band 5G coverage would reach at least 88% of the U.S. population. Downloads speeds of at least 50 Mbps would be available to at least 99% of the U.S. population, and download speeds of at least 100 Mbps would be available to at least 90% of the U.S. population, according to the companies’ FCC filing.

For both the three- and six-year commitments, some details relating to the number of sites and the band-width to be deployed were redacted in the public filing.

With respect to deployment in rural areas specifically, the companies said that within three years of the closing date of the merger, they would deploy low-band 5G coverage to an area covering at least 85% of the rural population (which includes 61.98 million residents, for the purpose of the merger commitments) and mid-band 5G coverage to an area covering at least 55% of the rural population. At the three-year mark, 66.7% of the rural population would have access to download speeds of at least 50 Mbps and 55% would have access to download speeds of at least 100 Mbps.

By the six-year mark, the companies said they would deploy low-band 5G coverage to an area covering at least 90% of the rural population and mid-band 5G coverage to an area covering at least 66.7% of the rural population. By the six-year mark, 90% of the rural population would have access to download speeds of at least 50 Mbps and 66.7% would have access to download speeds of at least 100 Mbps.

Speeds would be verified by drive tests paid for by the new T-Mobile, and the FCC would have the right to approve a third party that would oversee the testing, according to a senior FCC official on the press call. Drive-test results and other verification data would be submitted within nine months of the third and sixth anniversaries of the closing date of the merger, and progress reports on site and spectrum deployment and in-home broadband commitments would be due within 60 days of the first, second, fourth, and fifth anniversaries of the merger closing date.

With regard to fixed, in-home broadband service as a competitor to wireline broadband, they said that within three years of closing the merger they would market in-home broadband service to at least 9.6 million “eligible households,” of which at least 2.8 million would be rural households. At the six-year mark, they would market in-home broadband service to at least 28.0 million eligible households, of which 5.6 million would be rural households.

Information regarding commitments the number of supported households is not specified in the public version of the filing.

An eligible household is defined as “a household located in a geography: (A) over which New T-Mobile’s network will provide signal quality suitable to support the In-home Broadband Service; and (B) in which New T-Mobile’s network has sufficient capacity to serve one or more households with In-home Broadband Service, as shown in the polygon shapefile submitted to the Bureau.”

Supported households are “defined as those Eligible Households that New T-Mobile will have the capacity to serve with its In-home Broadband Service at any given time (based upon an average usage across the sector of [REDACTED] GB per month per household as of 3 years following the close of the T-Mobile/Sprint merger and an average usage across the sector of [REDACTED] GB per month per household as of 6 years following the merger closing). Supported Households will be calculated according to the methodology set out in T-Mobile’s ex parte filing detailing its In-Home Broadband plans,” today’s filing says.

“Within 60 days of the closing of the T-Mobile/Sprint merger, New T-Mobile and the Bureau will work in good faith to refine this methodology to utilize actual deployment numbers,” it adds.

The companies commit in the filing to “voluntary contributions” to the U.S. Treasury if they fall short of 5G or in-home broadband commitments, with dollars amounts ranging from $10 million for a shortfall of 0% to 5% on any element, up to $250 million for shortfalls of 50% or more on any element. The amount of the voluntary contributions would be cumulative — that is, assessments for failing to meet various elements would be added to other assessments.

Failure to meet commitments in the sixth year would be subject to a maximum $2.4 billion voluntary contribution.

Regarding the commitment to divest Boost Mobile, an FCC senior official told reporters that the commitment was structured to ensure that Boost Mobile would continue to have the incentive and capacity to compete with T-Mobile, and that T-Mobile would have the incentive to compete with Boost in the pre-paid market where, the official said, there is the greatest concern about a lack of competition in the wake of the merger. The FCC would have the authority to approve a wholesale MVNO (mobile virtual network operator) agreement between new T-Mobile and Boost.

The companies reaffirmed their February commitment to “make available the same or better rate plans as those offered by T-Mobile or Sprint as of [Feb. 4, 2019] for three years following the merger.”

They also committed that “New T-Mobile will not exercise any termination rights under Altice’s MVNO agreement with Sprint that might be triggered by the merger. In addition, New T-Mobile commits to engage in good faith negotiations to expand the existing Sprint/Altice agreement to the New T-Mobile 5G network.”

In a statement released this morning, Chairman Pai said, “Two of the FCC’s top priorities are closing the digital divide in rural America and advancing United States leadership in 5G, the next generation of wireless connectivity. The commitments made today by T-Mobile and Sprint would substantially advance each of these critical objectives.”

He added, “The construction of this network and the delivery of such high-speed wireless services to the vast majority of Americans would substantially benefit consumers and our country as a whole.”

Chairman Pai emphasized the companies’ commitment “to a robust buildout of their mid-band spectrum holdings,” to the rollout of an in-home broadband product,” to not raise prices for three years, to divest Boost Mobile, and to face “serious consequences if they fail to follow through on their commitments to the FCC.”

“In light of the significant commitments made by T-Mobile and Sprint as well as the facts in the record to date, I believe that this transaction is in the public interest and intend to recommend to my colleagues that the FCC approve it. This is a unique opportunity to speed up the deployment of 5G throughout the United States and bring much faster mobile broadband to rural Americans. We should seize this opportunity,” Chairman Pai said.

Also in a statement released this morning, Commissioner Brendan Carr said, “I support the combination of T-Mobile and Sprint because Americans across the country will see more competition and an accelerated buildout of fast, 5G services. The proposed transaction will strengthen competition in the U.S. wireless market and provide mobile and in-home broadband access to communities that demand better coverage and more choices.”

He added, “Today’s commitments to bring 5G to rural America are verifiable and enforceable. The proposed transaction’s investment in rural 5G will help close the digital divide — this FCC’s top priority. American leadership in 5G depends on giving all communities a fair shot at next-gen access. I am pleased that the parties have agreed to invest in securing the U.S.’s preeminence in 5G.”

Later in the day, Commissioner Mike O’Rielly said in a tweet, “While I generally withhold all comments regarding pending or prospective mergers, I find it necessary to clarify, at this time, that I am inclined to support T-Mobile/Sprint proposed merger, even if not convinced of the need for all the newly announced conditions being proposed.”

However, Commissioner Rosenworcel tweeted, “We’ve seen this kind of consolidation in airlines and with drug companies. It hasn’t worked out well for consumers. But now the @FCC wants to bless the same kind of consolidation for wireless carriers. I have serious doubts.

Democratic Commissioner Geoffrey Starks did not make a statement on the developments in the merger review.

In a blog posting, T-Mobile Chief Executive Officer John Legere said, “We look forward to continuing to meet and work with a variety of important stakeholders to demonstrate the powerful benefits the New T-Mobile will bring – but today’s filing is at the center of our plans to bring 5G to American consumers. Ultimately, today’s commitments are about our shared goal to put the U.S. at the forefront of 5G innovation, driving massive economic growth, helping bridge the Digital Divide, creating more competition, and of course, giving consumers and businesses more for less. The commitments we’re making today help advance all of these goals! It is that simple.”

Democrats in Congress were among those who criticized FCC support for the transaction and called on the Justice Department to oppose the deal.

House Judiciary Committee antitrust subcommittee Chairman David N. Cicilline (D., R.I.) said, “Chairman Pai’s statement is deeply concerning. Consolidation is a threat to progress and economic opportunity, not the driver of it. Actual competition in the wireless market is critical to building out the next generation of internet and wireless services.”

Chairman Cicilline added, “Empty promises will not make this transaction a good deal for American workers and consumers. The burden is on Sprint and T-Mobile to show that this deal is not illegal. I expect the Justice Department to hold them to that longstanding requirement.”

Sen. Richard Blumenthal (D., Conn.) said, “Trump’s FCC is again siding with behemoth corporations over American consumers and workers. Saying no to this dangerous deal should be an easy call. The supposed public interest protectors are rubber stamping a massive merger that will undercut competition, stifle innovation, and jeopardize jobs. By rigging the result in favor of corporate profit over public interest, the FCC will rightly earn public condemnation — and a court fight. In fact, the FCC has warned against similar mergers in the past. A T-Mobile-Sprint merger will not serve the public interest — it will lead to higher bills for American consumers, in particular hurting low-income consumers.”

Sen. Blumenthal added, “The FCC’s seeming abdication makes it even more important for the Department of Justice to step up to the plate to block this merger. This is a test of our antitrust enforcers’ will to act. They must prove their will.”

Many opponents of the proposed merger had joined forced as the 4Competition Coalition, which in a statement on the commitments filing said, “The conditions being proposed today are wholly insufficient to protect consumers against the clear competitive harms this market-consolidating merger would bring. They do nothing to alleviate the reduction in choice for hundreds of millions of wireless users. They do nothing to ameliorate the anticompetitive effects that come from eliminating the industry’s most active wholesale competitor, harms that would befall rural Americans in particular. And they do nothing to patch the obvious loopholes in T-Mobile’s pricing pledge. Our diverse alliance of consumer groups, telecom companies, labor unions and more calls on the Department of Justice and states attorneys general to do their jobs and protect consumers from a merger that will clearly damage the wireless marketplace and leave Americans worse off.”

Among the many individual 4Competition Coalition members issuing individual statements, Incompas CEO Chip Pickering said, “Chairman Pai deserves credit for demanding 5G commitments from T-Mobile and Sprint as a condition for their mega merger. But without a strong, robust commitment to wholesale, there will be no guarantees for a competitive 5G future in our country.” Mr. Pickering added, “We strongly encourage the FCC and the Department of Justice to ensure strong wholesale conditions from T-Mobile-Sprint or reject the deal out right.”

The Rural Wireless Association said it is “extremely disappointed that, in issuing statements expressing support for the proposed merger between T-Mobile and Sprint, Chairman Pai and Commissioner Carr chose to ignore the record evidence of the harm to rural consumers and rural carriers that will result from allowing Sprint to exit the market for national mobile wireless service.”

RWA added, “The vague, unsubstantiated conditions proposed by T-Mobile and Sprint, and accepted as true by Chairman Pai and Commissioner Carr without further investigation and public comment, are drastically insufficient to protect consumers against the clear harms this market-consolidating merger would bring. Moreover, the proposed ‘penalties’ for failing to comply with the conditions offered are illusory and will not force T-Mobile to keep its promises, as the carrier will only be fined a small fraction of the $100-billion-plus of rural network buildout costs that it will take to meet the conditions imposed.”

NTCA CEO Shirley Bloomfield said, “To curry favor for its merger, New T-Mobile is now making many promises — including a blanket and baseless pledge to solve rural broadband deployment challenges. T-Mobile has had sufficient spectrum and resources to deploy mobile networks in rural communities for years, but it has consistently declined or neglected to do so for even 3G or 4G services. Yet the company now promises to deliver in just a few years’ time services and technologies at a scope and scale never before seen, in rural areas that are in many cases lacking or just beginning to see the kind of fiber infrastructure necessary to realize anything remotely close to what is being promised. If we should have learned anything from previous mergers — and as Chairman Pai himself has articulated in similar contexts in the past — grandiose and arbitrary merger-related buildout pledges will not overcome the challenges of providing broadband in rural America. Rather than sweeping promises that are never achieved nor enforced, it takes real hard work, local community commitment, and resources to help make the business case for rural investment.”

Ms. Bloomfield added, “In the end, this merger is far more likely to harm than help rural consumers. Unlike T-Mobile, Sprint has been a willing partner to smaller rural providers, helping to ensure that consumers enjoy seamless mobile service across networks in rural and urban areas alike. In contrast, T-Mobile has offered no assurances that it will honor or extend current roaming or spectrum leasing agreements. The loss of this partnership will be devastating to rural wireless consumers.”

Michael Calabrese, director of the Wireless Future Project at the New America Foundation’s Open Technology Institute, said, “The commitments announced by T-Mobile, Sprint, and Chairman Pai do not add up to real 5G services for rural and small town America. Six long years from now, only two-thirds of the rural population would have service that is even one-tenth as robust as the real 5G that other carriers are already deploying in more profitable urban areas. The reality is that the merged company is no more likely to extend the ultra-fast 5G service that carriers are touting into rural and even exurban areas for many years, a fact that T-Mobile itself acknowledged just recently.”

Debbie Goldman, research and telecommunications policy director at the Communications Workers of America, said, “These new commitments and conditions do nothing to address our concerns about the impact of this merger on T-Mobile and Sprint workers and consumers. The merger would mean the elimination of 30,000 U.S. jobs as the new T-Mobile shuts down duplicative retail stores and consolidates headquarters functions. T-Mobile has made no written, verifiable commitments to the FCC to protect jobs. While T-Mobile has tried to muddy the waters with vague loophole-ridden pledges to maintain jobs for current T-Mobile and Sprint employees, three-quarters of current employees selling the companies’ services work for authorized dealers and are not covered by the jobs pledge — 88,000 workers in total.”

During the conference call with reporters, a senior FCC official suggested that the buildout commitments would necessarily mean more jobs. Free Press Vice President–policy and General Counsel Matt Wood said, “The digital divide isn’t just about rural buildout — though as others opposing the deal have shown, the merged companies’ spectrum wouldn’t allow for decent rural coverage at 5G speeds. Both T-Mobile and Sprint are already building 5G networks without the deal. The digital divide the FCC should focus on is the affordability crisis.”

Mr. Wood added, “Even T-Mobile’s own economists admitted that this deal would raise prices. It’s not just the post-merger T-Mobile that would be able to charge more, but AT&T and Verizon too. Everyone will pay more if this deal goes through.”

Former FCC official Gigi Sohn, now a distinguished fellow at Georgetown Law Institute for Technology Law & Policy, said, “The companies have made a handful of promises on 5G, rural buildout and in-home broadband that are speculative, not specific to the merger and completely unenforceable. Does anyone really believe that this FCC, which has asked nothing of the big mobile companies for over 2 years, will require the companies to abide by these commitments? Moreover, they are the type of behavioral conditions that Assistant Attorney General for Antitrust Makan Delrahim has said time and again are unenforceable and over-regulatory.”

Other parties criticizing the commitments as insufficient and calling for a rejection of the deal included Public Knowledge, “Consumer Reports,” and Mobile Beacon.

Some parties took a less negative but still cautious approach.

Claude Aiken, president and CEO of the Wireless Internet Service Providers Association, said, “We appreciate that the combination of T-Mobile and Sprint have set their sights on rural America, where nearly 20 million Americans lack adequate and affordable broadband services. Having more options out there, if even years from now, will help rural Americans get online. Of course, the devil’s in the details. All we have to go on are promises, and those promises are not much more than headlines.

“The stakeholders in this long, drawn out process are many, not solely the merging parties. Yet, only a small handful of individuals were at the table, negotiating matters that have wide-ranging effect on U.S. communications policy, rural Americans and the providers – like WISPA’s members – that risk private capital every day to expand broadband. To this end, we are wary of any unintended consequences which could occur from such a large merger. In particular, what would be the effect on investment for those already providing high-speed service in the areas T-Mobile / Sprint say they will serve? Will the merger thwart buildout of new broadband, especially from small providers?” Mr. Aiken said.

“We have many questions. Our members serve nearly four million individuals in the areas T-Mobile and Sprint have reportedly committed to serve. We trust that this process seeks to work with our members, not against them. In this regard, we hope the Commission allows robust public comment on the merger deal, so all stakeholders can see what it entails, and we can all better work to promote the public interest,” he added.

Parties supporting the merger applauded Chairman Pai’s announcement that he would circulate an order to approve the deal, although some felt the commitments were too onerous.

Former FCC Commissioner Mignon Clyburn, who is advising T-Mobile and Sprint on the proposed merger, said, “I applaud Chairman Pai for his 5G leadership in the T-Mobile Sprint merger and the commitments put on the table by both companies today. As our nation moves toward 5G, this leap forward in mobile broadband technology needs to reach all Americans wherever they are, in cities and rural locations alike, and the merger will help achieve this goal.”

Jessica Melugin, associate director of the Competitive Enterprise Institute’s Center for Technology and Innovation, said, “While CEI has urged regulators to let the merger proceed without market-distorting conditions, like the requirement that Sprint divest itself of Boost Mobile, the FCC’s approval appears to be a relatively clean deal and could have been much, much worse. Allowing the Sprint-T-Mobile merger to proceed will provide numerous benefits to consumers and our economy and will let the market work to provide private capital for 5G deployment. CEI hopes the FCC and the Department of Justice will move swiftly to approve this win for American consumers.”

TechFreedom General Counsel Jim Dunstan said that the combination of the third and fourth largest national wireless carriers “just makes competitive sense. We do remain concerned, however, of the price merger applicants are forced to pay to gain approval. Time and again regulatory agencies extract concessions that appear to go beyond the requirements of the antitrust laws. Here Boost Mobile is being divested. If the FCC is convinced that it could not grant the merger without that divestiture, it is incumbent on the FCC to make that case in the order granting the merger, not just sluff it off as something the parties are willing to give. Extracting these ‘pounds of flesh’ can have negative market consequences if not actually required under a valid antitrust analysis.”

Free State Foundation President Randolph May said, “Early in the FCC’s public review process of the proposed T-Mobile/Sprint merger, I stated that strong evidence existed that the merger would benefit consumers by enabling faster mobile broadband speeds, higher data capacity, and reduced per-megabit prices. In the year that the merger has been pending before the FCC, and with the new commitments that T-Mobile/Sprint have now offered, the case for concluding there are public benefits from the merger has become even stronger. There is an imperative that the U.S. lead the world in the race to deploy 5G networks, the super-fast next-generation of wireless networks. And there is also an imperative that high-speed broadband be accessible more ubiquitously to rural Americans. The new T-Mobile-Sprint conditions should help the U.S. achieve both of those imperatives.

“I hope the FCC and the Department of Justice will move forward now with dispatch in completing their merger reviews,” Mr. May added. —Lynn Stanton, [email protected]

MainStory: FederalNews FCC MergerAntitrust WirelessDeployment

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