Is T-Mobile+Sprint Gonna Happen?

Benton Foundation

Thursday, May 23, 2019

Weekly Digest

Is T-Mobile+Sprint Gonna Happen?

 You’re reading the Benton Foundation’s Weekly Digest, a recap of the biggest (or most overlooked) telecommunications stories of the week. The digest is delivered via e-mail (usually) each Friday.

Round-Up for the Week of May 20-24, 2019

Robbie McBeath

Federal Communications Commission Chairman Ajit Pai has recommended the agency approve T-Mobile’s $26 billion acquisition of Sprint, following a set of new commitments from the companies. Now, all eyes now turn to the Department of Justice to approve or reject the deal to create the “New T-Mobile.” 

New Commitments

T-Mobile and Sprint submitted their commitments in a filing with the FCC on May 20. The commitments focus on 5G, a selling point since the deal was first announced on April 29, 2018. 

Building a 5G Network

“New T-Mobile’s ability to create an unprecedented, world-leading, nationwide 5G network is the uncontested keystone of this merger,” the filing reads.

T-Mobile CEO John Legere
T-Mobile CEO John Legere testifying before the
House Antitrust Subcommittee in March 2019

By combining Sprint’s mid-band spectrum and T-Mobile’s low-band spectrum, T-Mobile claims it will be able to provide “virtually ubiquitous and deep 5G coverage across the country, including in rural areas.” Sprint’s mid-band spectrums will “create massive capacity,” while T-Mobile’s low-band spectrum will “provide broad coverage, and lower costs,” enabling New T-Mobile to cover both rural and urban areas with 5G. As a result, millions of Americans could have access to this nationwide 5G network that “will deliver transformative fiber-like speeds for mobile services.”

The specific 5G commitments include:

  • New T-Mobile will cover 97% of the U.S. population with 5G on low-band spectrum and 75% of the population with 5G on mid-band spectrum within three years. That will grow to 99% covered with low-band 5G and 88% with mid-band 5G in six years. 
  • New T-Mobile is establishing milestones to cover 85% of rural America with 5G on low-band spectrum in three years and 90% in six years.
  • Within six years, New T-Mobile will cover 90% of the U.S. population with mobile 100 megabits per second (Mbps) service and 99% with 50 Mbps service.
  • Within three years, New T-Mobile will deliver 50 Mbps or higher to two-thirds of the rural population and 100 Mbps or higher to over half the rural population. 
  • Within three years, New T-Mobile will deliver average speeds of over 150 Mbps and peak speed of 1.6 gigabits per second (Gbps). Within six years, average and peak speeds will have surged to 450 Mbps and 4.2 Gbps, respectively. 

New T-Mobile Home Internet

New T-Mobile also plans to “break the mold for in-home broadband” by offering fixed 5G service to households. Specifically:

  • In three years, offer -- and market! -- the service to 9.6 million households (~7.5% of total U.S. households). At least 2.6 million would be in rural areas. In six years, increasing to 28 million households (5.6 million rural).
  • The fixed 5G service will offer minimum speeds of 25 Mbps downstream and 3 Mbps upstream, with average speeds above 100 Mbps downstream.

Price Commitments and Divestiture of Boost

To “enhance the public interest benefits of the merger” and simplify the FCC’s expeditious review, T-Mobile submitted a firm commitment that “New T-Mobile will make available the same or better rate plans as those offered by T-Mobile or Sprint as of [May 2019] for three years following the merger.” 

T-Mobile Sprint Logos

T-Mobile also now commits to divest and sell Sprint’s Boost Mobile prepaid brands. Boost Mobile is a mobile virtual network operator (MVNO), a cell phone service reseller that uses the network of one of the “big 4” carriers (AT&T, Verizon, T-Mobile, or Sprint). MVNOs often offer cheaper cell phone plans as prepaid (or pay-as-you-go) options that do not require credit checks or contracts. Examples of other MVNOs include TracFone, Cricket, Virgin Mobile, and MetroPCS. 

Antitrust regulators at the Department of Justice could be concerned with the prepaid market. T-Mobile owns MetroPCS, while Sprint owns Boost Mobile and Virgin Mobile. Without divestitures, T-Mobile and Sprint would have about a 40% combined share of that market. Selling Boost may at least appease state attorneys general and Members of Congress who are worried about the impact on lower-income Americans.

Enforcing the Commitments

How will the FCC enforce the voluntary commitments? 

In its filing, T-Mobile wrote that the commitments will be enforced by “strong verification measures, substantial voluntary contributions for missed deadlines, and continuation of the voluntary contributions until unmet obligations are fulfilled.” 

If the FCC determines that New T-Mobile has failed to meet the three-year or six-year commitments, the “voluntary contribution” will be determined in accordance with a "calculated percentage missed."  A scale included in an appendix to the filing indicates >0%-5% missed percentage would be a $10 million voluntary contribution, while >10%-25% would be $50 million, for example. 

[E]ach of New T-Mobile’s six-year commitments will continue until satisfied and, accordingly, their respective voluntary contributions will continue to accrue and increase during their pendency. This enforcement standard is unprecedented in its strength.

Chairman Pai touted the strong enforcement mechanisms:

It’s also important that the companies would suffer serious consequences if they fail to follow through on their commitments to the FCC. These consequences, which could include total payments to the U.S. Treasury of billions of dollars, create a powerful incentive for the companies to meet their commitments on time.

Commissioner Brendan Carr agreed: “Today’s commitments to bring 5G to rural America are verifiable and enforceable.”

Benton Senior Fellow Gigi Sohn disagrees. She wrote in Wired that Chairman Pai’s FCC has not made one decision contrary to the interests of the big mobile broadband carriers. And if Chairman Pai is still the FCC Chairman when the promises come due, enforcing the companies’ promises will be extremely difficult, if not impossible. 

As has been the case with the Comcast-NBC Universal merger, big and powerful companies will litigate every condition to the death, and they have far more resources to do so than the government.

FCC Majority Indicates Thumbs Up

On May 20, FCC Chairman Ajit Pai recommended that his fellow FCC commissioners approve the deal. “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 said. 

Commissioner Carr quickly voiced his support of the merger. “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.” "When you think about the scope and the scale of the infrastructure build we need to get 5G in rural communities, I think this is going to be a really good win for rural America,” he said later. 

Commissioner Michael O’Rielly gave the deal a thumbs up as well. He tweeted:

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.

FCC Commissioner Jessica Rosenworcel had some doubts. She tweeted

We've seen this kind of consolidation in airlines and with drug companies. But now the @FCC wants to bless the same kind of consolidation for wireless carriers. I have serious doubts. I'm reviewing the conditions that have been proposed by the carriers and blessed by my colleagues. You should have the right to do so, too. The @FCC should put them out for comment so the public can tell us just what they think about this new proposal.

Reaction from Public Interest Community

Most in the public interest community were disappointed by Chairman Pai’s decision. 

Gigi Sohn said that the deal would be bad for the public, writing that T-Mobile’s commitments are “speculative, unsubstantiated, and entirely unenforceable.” 

On T-Mobile’s ambitious 5G coverage goals, she says that nothing in the filings prove that the company can meet these goals and that they are wildly optimistic. 

And on the price commitments, Sohn notes that the mere fact that T-Mobile believes it must make this promise is itself an admission that post-merger, there would not be enough competition in the wireless market to constrain increases:

[T]his so-called “pricing commitment” is for a limited time and is riddled with ambiguities and loopholes. It is supremely ironic that the FCC chair who led the charge to abdicate the agency’s role protecting consumers, competition, and an open internet because of fears that the agency might one day engage in rate regulation is proposing that his FCC do just that.

Free Press also took issue with the price commitments:

The supposed three-year price freeze is meaningless in a wireless market where prices are falling and likely would continue to drop in the absence of this merger. The little bit of price competition people have enjoyed thanks to the rivalry between Sprint and T-Mobile could keep sending prices lower. So a meaningless and unenforceable promise to just tread water where we are now is a sad joke, and nothing more.

Phillip Berenbroick, Senior Policy Counsel at Public Knowledge, said:

Since the proposed T-Mobile/Sprint combination was announced more than a year ago, it has been clear that additional consolidation of the mobile broadband market would harm consumers and significantly reduce competition and innovation. The commitments announced today by T-Mobile/Sprint and Chairman Pai do nothing to resolve these harms.

[More reactions to Chairman Pai’s recommendation for approval of the merger can be found here.]

All Eyes on the Department of Justice

While the FCC must consider whether transactions are in the public interest, the Department of Justice considers a different standard: whether a deal hurts competition and would raise prices for consumers.

On May 22, news broke that DOJ staff members who have been reviewing the acquisition have recommended that the DOJ sue to block the deal. The recommendation came before the new concessions. 

Despite the recommendation, a decision to block the deal has not been made. That authority rests with the DOJ’s top antitrust official, Makan Delrahim.

Gene Kimmelman, president of Public Knowledge, said top brass in the DOJ’s antitrust division do not generally overrule the staff, but they occasionally do. “I’d be extremely surprised if the front office overruled this,” said Kimmelman, a veteran of the Obama DOJ. 

And Gigi Sohn notes:

[Delrahim] has shown a willingness to reject anticompetitive and anticonsumer deals in media and telecommunications, including the mergers of AT&T and Time Warner, and Sinclair and Tribune. This should be an even easier call both for the DOJ and for the courts. A T-Mobile/Sprint combination is a classic four-to-three merger that will raise prices, reduce competition and innovation, and harm rural carriers and low-income Americans.

Benton Senior Counselor at the Public Interest Communications Law Project at Georgetown University Law Center's Institute for Public Representation (IPR) Andrew Schwartzman said:

It is possible, but rather unlikely, that DOJ will still oppose the deal. However, that is not the end of it, as it is also quite possible that one or more states will challenge the transaction. While those obstacles remain, the odds of ultimate approval are now very high. I fear this means higher prices.

All eyes are now on the DOJ as it considers the antitrust implications. 

You can follow along with news of the merger daily by subscribing to Headlines

Quick Bits

Weekend Reads (resist tl;dr)

ICYMI from Benton

Events Calendar for May 27-June 7, 2019

May 29 -- Designing for Our Future: Solutions for Digital Well-Being, Common Sense Media

May 31 -- Public Forum on the USA FREEDOM Act, Privacy and Civil Liberties Oversight Board

May 31 -- Deadline for Submission: Charles Benton Early Career Scholar Award

June 3 -- Consumer Advisory Committee Meeting, FCC

June 3 -- Next Generation Wi-Fi: Accelerating 5G for All Americans, New America

June 5 -- Speech Police: The Global Struggle to Govern the Internet, New America

June 5 -- What’s the Answer to the C-Band Conundrum?, Technology Policy Institute

June 6 -- FCC Open Meeting

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Kevin Taglang

Kevin Taglang
Executive Editor, Communications-related Headlines
Benton Foundation
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By Robbie McBeath.