T-Mobile, Sprint gain agency’s OK to merge

WASHINGTON — Federal regulators on Friday signed off on the $26 billion merger between T-Mobile and Sprint, setting the stage for a tectonic shift in the U.S. wireless industry at a moment when carriers are racing to deploy the next generation of ultra-fast mobile service.

The green light from the government’s antitrust watchdogs at the Justice Department marks a critical milestone in the long-running campaign by T-Mobile, the country’s third-largest carrier, to combine with Sprint, the fourth-largest, and form a telecommunications giant that is expected to serve more than 100 million subscribers nationally. Its two main rivals, AT&T and Verizon, have even larger footprints.

In pitching their plans to regulators, T-Mobile and Sprint emphasized that only through merging could they build and deploy speedy 5G service nationwide, which they have committed to taking to 97% of the U.S. over the next three years.

Justice Department officials still harbored competition concerns about the deal, fearing that the loss of a major national wireless carrier would leave American consumers with too few choices — potentially resulting in higher prices. In response, the agency required T-Mobile and Sprint

to sell critical elements of business to Dish Network, with the goal of positioning the satellite-television company as a new competitor in the wireless industry.

“We’ve reached a historic structural settlement with T-Mobile and Sprint after concluding their merger, without this remedy, would substantially harm competition,” said Makan Delrahim, the leader of the Department of Justice’s antitrust division. “The remedies set up Dish as a disruptive force in wireless.”

Immediately, critics blasted the government for blessing even more consolidation among telecom companies. Dish pledged it would build out new wireless service to 70% of the country by 2023, but analysts expressed concern that the Englewood, Colo.-based company might never hit its target, given the cost of establishing such 5G coverage at a moment when Dish has been shedding customers.

Such concerns emboldened state attorneys general, including California and New York, who earlier this year sued T-Mobile and Sprint in a bid to stop them from merging.

“We have serious concerns that cobbling together this new fourth mobile player, with the government picking winners and losers, will not address the merger’s harm to consumers, workers, and innovation,” New York Attorney General Letitia James said in a statement Friday.

For now, the Justice Department’s decision removes a significant federal hurdle that had been standing in the way of the two telecom giants, which had flirted for years over a potential tie-up but repeatedly abandoned their plans in the face of sustained skepticism in Washington. Absent the divestitures to Dish, the Justice Department said Friday, the federal agency would have sued to stop the deal.

A federal judge still must approve the companies’ settlement with the Justice Department. The Federal Communications Commission also has to bless the deal, though that agency’s Republican leaders previously expressed public support for the two wireless giants’ plans — and signaled Friday that their formal green light will come soon.

T-Mobile, which is operated by Germany’s Deutsche Telekom, and Sprint, which is owned by the Japanese conglomerate SoftBank, announced their merger in April 2018. T-Mobile and Sprint said they could not muster the necessary investments individually to develop and deploy 5G services, putting them at a major disadvantage against AT&T and Verizon.

The two wireless carriers began pitching the deal to the FCC, which reviews mergers to see whether they benefit the public, and the Justice Department, which studies competition, at a moment when Democrats and Republicans in Washington had started sounding alarms about the dangers of corporate consolidation.

In recent months, the merger has attracted heightened attention from Senate Democrats — several of them contenders for the White House in 2020 — who said it would result in “unacceptably high levels of concentration in an already consolidated wireless industry.”

Consumer groups such as Public Knowledge echoed those concerns, arguing that a combined T-Mobile and Sprint would result in higher prices and fewer options for consumers. Many critics pointed to the fact that T-Mobile already had become a fierce competitor — offering more customer-friendly contracts, for example — precisely because the government had warded off a merger by the two companies in the past.

But T-Mobile and Sprint in recent months offered concessions to reshape their merger in a bid to win over federal regulators. In May, the companies pledged to build out its 5G wireless network to most of the country, including much of rural America, while offering “same or better rate plans at the same or better prices” for the next three years. The announcement satisfied Ajit Pai, the chairman of the FCC, who warned that the companies will “suffer serious consequences” if they break their promises.

To assuage the Justice Department, T-Mobile and Sprint agreed to divest the key assets that would help Dish become a fourth national wireless carrier — including hundreds of retail stores, thousands of cell sites and licenses to the invisible airwaves, known as spectrum, that power wireless service. The merging companies also will give up their pre-paid phone businesses, Boost Mobile and Virgin Mobile.

The deal is valued at more than $5 billion, Delrahim said, and it also will allow Dish to offer service over T-Mobile’s network until it’s able to operate its own. Existing spectrum holdings at Dish helped the companies gain the approval of the Justice Department, officials said Friday, and Dish must meet its expansion targets or face billions of dollars in federal penalties.

“Taken together, these opportunities will set the stage for our entry as the nation’s fourth facilities-based wireless competitor and accelerate our work to launch the country’s first standalone 5G broadband network,” Charlie Ergen, the chairman and co-founder of Dish, said in a statement.

Some of the deal’s skeptics, however, said that the companies’ concessions are unlikely to address their concerns: that it could take too long for the sale of spectrum and other assets to Dish, resulting in a carrier unable to compete with AT&T, Verizon and a merged T-Mobile and Sprint.

“A new mobile wireless entrant that starts with zero postpaid subscribers and that must rely on its much bigger rival, the new T-Mobile, just to operate is not a competitor. It’s a mobile Frankenstein,” said Gigi Sohn, a distinguished fellow at the Georgetown Law Institute for Technology Law and Policy.