Trump’s China Fixation Looms Large Over Sprint, T-Mobile Merger

T-Mobile CEO John Legere sees Washington’s worry over China’s accelerating 5G advances as his ace in the hole.

T-Mobile CEO John Legere (left) and Sprint CEO Marcelo Claure shake hands as they are interviewed on the Fox Business Network in New York on April 30.
AP Photo/Richard Drew
May 2, 2018, 8 p.m.

When T-Mobile and Sprint first sought to merge in 2014, the two wireless carriers—respectively the third- and fourth-largest in the United States—were met with such furious opposition from Obama-era regulators that they abandoned the deal before it was even announced.

Last Sunday, the two companies announced another crack at combining. But four years later, most of the fundamental arguments against the merger haven’t changed.

The wireless marketplace remains highly concentrated, with AT&T and Verizon filling out the slim bench of carriers from which most Americans purchase services. And while President Trump’s antitrust officials aren’t quite as zealous as President Obama’s, their challenge of the merger between AT&T and Time Warner shows a mind-set that’s surprisingly aggressive for a Republican administration.

“The companies are going to have to make a pretty creative case for why a four-to-three merger in such an already-concentrated market won’t end up with higher prices for consumers,” said Phillip Berenbroick, the senior policy counsel at liberal tech group Public Knowledge.

But T-Mobile chief executive John Legere appears to be banking on a new argument that’s now especially resonant in Washington. From Capitol Hill to the Federal Communications Commission to President Trump himself, policymakers are fixated on the economic and military threat posed by China’s burgeoning tech industry.

And by framing the merger as a crucial counterweight to Chinese advances in 5G technology—a new wireless standard that will dramatically increase download speeds and grease the skids for driverless cars and other innovations—Legere hopes to succeed where he failed four years previously.

In a Sunday press call announcing the merger, Legere repeatedly fretted over the rapid growth in China’s wireless development and deployment, at one point warning that China was “moving toward leadership in 5G.”

“That can’t happen,” the T-Mobile executive said. “And this transaction is a major way that Sprint and T-Mobile know we need to respond together in order to provide that for this country. And we think we can drag the rest of the players, kicking and screaming, to the prize, which is American leadership in 5G as we had in 4G.”

Legere argued that only together would Sprint and T-Mobile have the capital needed to quickly make expensive wireless investments throughout the United States.

It’s an unusual line for Legere, whose long hair and pink shirts consciously promote the image of a “maverick” CEO more focused on customer satisfaction than the international tech paradigm.

“My guess is that since Legere has adopted these security talking points, he must have some insight into what would resonate with the [FCC] commissioners,” said David Simpson, the former chief of the FCC’s Public Safety and Homeland Security Bureau. “Because he hasn’t been out in front with cybersecurity, or with 5G development.”

The FCC is one of two federal agencies which will need to approve the deal. And the commission has lately taken an outsized interest in the threat Chinese tech poses to the United States, drafting a proposal last month that would ban subsidies for any telecommunications company using hardware or software from suspicious Chinese firms.

Congress and the Trump administration are also wary of growing Chinese dominance in advanced technologies, and wireless tech in particular. FCC commissioners openly admit that their new national-security proposal was driven by pressure from Capitol Hill. And while it was roundly ridiculed by tech experts and the business community, the White House’s leaked plans to build a nationalized 5G network to check Chinese progress shows how far the administration will go to tackle the issue.

Some experts say Legere’s argument has legs, and that a combined T-Mobile and Sprint would speed up the deployment of new wireless tech in the United States.

“The U.S. is definitely going to be better off with three strong players investing in 5G networks, [as opposed] to two strong players and two weak ones,” said Berin Szoka, president of the free-market tech group TechFreedom. Because the combined company would still be smaller than AT&T or Verizon, Szoka says it’s “absurd” to conclude that the merger would violate antitrust law.

Others say Legere’s argument is cynically designed to trigger latent anxiety over China’s progress in wireless tech, but is otherwise short on substance.

Gigi Sohn, a fellow at Georgetown Law who served as a senior staffer for former FCC Chairman Tom Wheeler, says Sprint and T-Mobile are already making major investments in 5G and will continue to do so whether or not the merger is approved.

“These companies are throwing every bit of spaghetti at the wall that they can,” Sohn said. “They’re using all the code words—5G, China, rural broadband—and I’m not sure how much any of that matters to the Antitrust Division at the Justice Department.”

“It’s rote and cliché, but that’s the ‘creative’ argument,” Berenbroick said. “‘The dynamics of this marketplace don’t matter; nothing matters because we’re in a fight to the death with China.’”

But though that argument could find solid footing at the FCC—which in part weighs whether to approve mergers through a nebulous “public interest” standard that could conceivably include national security—it may find fewer takers at DOJ’s Antitrust Division.

Paul Glenchur, a senior telecommunications analyst at Hedgeye Risk Management, said the DOJ is unlikely to factor China’s 5G advances into any decision until it has first assessed how a combined T-Mobile and Sprint could affect domestic competition in the wireless market.

While emphasizing the merger’s impact on Chinese wireless progress may certainly help on Capitol Hill, where Democratic lawmakers are already calling for hearings on the merger, Glenchur believes the regulatory agencies will likely view the national-security question as an ancillary issue.

“I just think that in talking about the China angle, it’s more an incremental characterization of an efficiency benefit [of the merger],” he said. Glenchur added that while both the DOJ and the FCC could factor China and national security into their final decision, T-Mobile won’t be able to rely predominantly on that argument.

Szoka, however, said he could foresee a scenario in which the Trump administration leans on the DOJ to suppress any skepticism over the horizontal merger in order to push back on a rising China.

“To the extent that the administration is driven by populism, then I guess they’re going to have to hang tough in some way, or find some way to say, ‘Yeah, we know that people are concerned, but this is really important for making us able to compete with China,’” Szoka said.

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