The Obama Administration Is on T-Mobile’s Porch With a Shotgun

Sprint is engaged in a long merger flirtation with T-Mobile, but the Justice Department is determined to keep the couple apart.

President Barack Obama shoots clay targets on the range at Camp David, Md., Saturday, Aug. 4, 2012. (Official White House Photo by Pete Souza)
National Journal
Brendan Sasso
Feb. 3, 2014, midnight

Reg­u­lat­ors have a mes­sage for Sprint and T-Mo­bile: Don’t even think about it.

T-Mo­bile might be start­ing to feel like a teen­ager with an over­pro­tect­ive fath­er. The na­tion’s fourth-largest cel­lu­lar pro­vider keeps flirt­ing with oth­er car­ri­ers, but the Obama ad­min­is­tra­tion keeps step­ping in to break things up.

In 2011, the Justice De­part­ment and the Fed­er­al Com­mu­nic­a­tions Com­mis­sion blocked AT&T’s $39 bil­lion bid to buy T-Mo­bile, say­ing the deal would have stifled com­pet­i­tion and led to high­er prices. The re­jec­tion stung for AT&T; the com­pany had to pay a $4 bil­lion break­up fee to T-Mo­bile.

Now Sprint is the latest suit­or to be­come en­am­ored with T-Mo­bile, and the com­pan­ies are re­portedly dis­cuss­ing a pos­sible mer­ger. But in re­cent days, the Obama ad­min­is­tra­tion has been send­ing Sprint a clear mes­sage to back off.

“It’s go­ing to be hard for someone to make a per­suas­ive case that re­du­cing four firms to three is ac­tu­ally go­ing to im­prove com­pet­i­tion for the be­ne­fit of Amer­ic­an con­sumers,” Wil­li­am Baer, the head of the Justice De­part­ment’s An­ti­trust Di­vi­sion, told The New York Times last week, re­fer­ring to the four na­tion­al wire­less car­ri­ers. “Any pro­posed trans­ac­tion would get a very hard look from the An­ti­trust Di­vi­sion.”

Reg­u­lat­ors rarely com­ment on spe­cif­ic deals (es­pe­cially hy­po­thet­ic­al ones), but it’s not hard to read between the lines.

Not only would Sprint and T-Mo­bile have to per­suade the Justice De­part­ment to bless their mer­ger, but be­cause the deal would in­volve the trans­fer of wire­less air­wave li­censes, they would also need ap­prov­al from the FCC.

FCC Chair­man Tom Wheel­er has in­dic­ated he would put any ma­jor wire­less mer­ger through the wringer.

“The mo­bile busi­ness is today with four car­ri­ers a com­pet­it­ive busi­ness,” he said dur­ing a pub­lic dis­cus­sion in Ohio in Decem­ber. “And it’s im­port­ant it stay that way.”

Even as­sum­ing op­pos­i­tion from the Obama ad­min­is­tra­tion, Sprint (and its par­ent com­pany Soft­Bank) could try for the deal any­way and hope to win in court.

Sprint would have a stronger leg­al de­fense than AT&T did. Ve­r­i­zon and AT&T are the in­dustry’s largest firms, with Sprint and T-Mo­bile trail­ing far be­hind.

In a re­cent in­ter­view on Bloomberg Tele­vi­sion, T-Mo­bile CEO John Legere ar­gued that a mer­ger with Sprint could help crack the in­dustry’s “duo­poly” and ac­tu­ally lead to more ro­bust com­pet­i­tion.

But Jef­frey Silva, a tele­com­mu­nic­a­tions in­dustry ana­lyst with Med­ley Glob­al Ad­visors, said that try­ing to beat the gov­ern­ment in court would be a “huge risk” for Sprint.

“The sig­nals seem to be pretty clear at this point that the ad­min­is­tra­tion does not want this deal,” he said. “To just kind of hope that you can win in over­time with a fed­er­al judge, that’s a really risky high-stakes game to play.”

If Sprint tries to buy T-Mo­bile and fails, it would likely be on the line for a hefty break­up fee. A failed mer­ger also ties up a com­pany’s re­sources in leg­al fees and lob­by­ists and can mean delay­ing oth­er im­port­ant busi­ness de­cisions.

Sprint and T-Mo­bile de­clined to com­ment for this story.

The Justice De­part­ment has ar­gued that T-Mo­bile is a “mav­er­ick” com­pet­it­or, shak­ing up the wire­less in­dustry by in­tro­du­cing new fea­tures and pri­cing plans. Last month for ex­ample, the car­ri­er an­nounced that it will pay the early ter­min­a­tion fees for people who switch from a com­pet­it­or.

“Pushed by T-Mo­bile, the com­pet­i­tion has re­spon­ded,” the Justice De­part­ment’s Baer said in a speech last week in New York, not­ing that Sprint re­cently un­veiled a new un­lim­ited data plan and that AT&T has hit back by of­fer­ing a $200 cred­it to T-Mo­bile cus­tom­ers who switch. When T-Mo­bile an­nounced a plan last year to al­low cus­tom­ers to up­grade phones twice a year, the oth­er car­ri­ers all re­spon­ded with their own plans to al­low more fre­quent up­grades.

“Com­pet­i­tion today is driv­ing enorm­ous be­ne­fits in the dir­ec­tion of the Amer­ic­an con­sumer,” Baer said.

But Silva said the ex­ec­ut­ives at Sprint and T-Mo­bile may be won­der­ing how long they can com­pete with Ve­r­i­zon and AT&T.

“Both are trail­ing in 4G LTE build-out, and if you look at mar­ket share and sub­scribers, there’s quite a bit of dis­tance between them­selves and AT&T and Ve­r­i­zon,” he said.

Even with dim reg­u­lat­ory pro­spects, buy­ing T-Mo­bile might be Sprint’s last best chance to get on equal foot­ing with the two in­dustry gi­ants, Silva said.

The Justice De­part­ment, however, has a dif­fer­ent plan for boost­ing the two smal­ler car­ri­ers.

The FCC plans to auc­tion off the rights to large chunks of the air­waves in 2015. With the de­mand for stream­ing videos, down­load­ing apps, and brows­ing the Web skyrock­et­ing, all the car­ri­ers are look­ing to get ac­cess to more fre­quen­cies to carry their cus­tom­ers’ traffic.

AT&T and Ve­r­i­zon cur­rently con­trol most of the prime low-band fre­quen­cies, which can carry sig­nals over great­er dis­tances. So the Justice De­part­ment wrote a memo to the FCC last year, re­com­mend­ing that the agency use caps or lim­its to ham­string the big play­ers, en­sur­ing that Sprint and T-Mo­bile can come away from the auc­tion in strengthened po­s­i­tions.

It re­mains to be seen wheth­er the prom­ise of ad­di­tion­al air­waves and the threat of reg­u­lat­ory ac­tion will be enough for Sprint to res­ist the al­lure of T-Mo­bile.

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