Home / Business / The merger between Sprint and T-Mobile is about to cross its biggest hurdle

The merger between Sprint and T-Mobile is about to cross its biggest hurdle

Until all parties agree on concessions, the Justice Department will approve the agreement by the end of this week or the beginning of next week, according to a familiar person. folder. The dealerships would likely include the sale of Boost Mobile, Sprint's discounted wireless service.

However, negotiations are still ongoing and the Justice Department is ready to prosecute if negotiations fail, according to the source.

The Department of Justice declined to comment on this article.

The blessing of the Department of Justice is an essential step forward for T Mobile (TMUS) and Sprint (S) as they seek to join forces against Verizon (VZ) and AT & T, (T) which owns CNN's parent company, WarnerMedia.

The agreement will not be finalized once the Justice Department approves it: it is still awaiting approval from the Federal Communications Commission and a group of attorneys general.

Last week, state attorneys general in California and New York on Tuesday filed a complaint to block the proposed merger, along with seven other states and the District of Columbia. They said the Sprint (S) and T Mobile (TMUS) The merger would result in "less competition and better returns for network operators," according to the lawsuit. States may be forced to accept concessions from companies before filing their complaint.
Last month, FCC President Ajit Pai recommended that the FCC bless the deal after Sprint and T-Mobile made changes to the proposed merger structure.

To receive Pai's blessing, companies have embraced certain coverage commitments, including download speeds of 100 megabits per second (equivalent to fast broadband speeds) accessible to approximately 66 percent of Americans in all three countries. years after the conclusion of the transaction. The companies are committed to building a 5G network within six years of the merger. They promised that the network would also include coverage for some rural Americans, and said the new company would offer a broadband home product.

Sprint has also agreed to sell Boost Mobile, and this new company will promise to offer better prices than those currently offered by T-Mobile or Sprint for three years from the conclusion of the transaction. The companies agreed to pay the FCC fines of up to $ 2.4 billion if they violated the agreement.

But the support of the Ministry of Justice means that the two companies have overcome a major obstacle in their attempt to consolidate in an already concentrated sector. The agency often looks with skepticism at offers in which direct competitors are combining.

Opponents said the merger would result in reduced competition and long-term price increases. The decision to approve the deal shows that federal regulators are increasingly willing to accept consolidation in the wireless industry, dominated by a handful of huge players.

Although this has never been a formal policy, the US government has repeatedly reiterated that the country was in a better situation when there were at least four domestic wireless providers. In 2011, this logic motivated the opposition of the FCC and the Department of Justice to the T-Mobile purchase project by AT & T. The agencies were equally critical when Sprint attempted in vain to to acquire T-Mobile in 2014.

Now, both regulators seem more open to changes in this approach. In the Department of Justice, the head of antitrust legislation, Makan Delrahim, argued that there was no "magic number" of competitors guaranteeing a healthy market.

Normally, the Justice Department and the FCC coordinate their merger announcements, according to market research firm New Street Research, in a memorandum addressed to investors last month. But in this case, the FCC seemed to show its hand well before the Justice Department was ready. The reason the FCC did not make it clear, but it could have been calculated to put pressure on Delrahim for what he approved of the deal, added New Street.

"The majority of the FCC has actually approved an agreement pending before the DOJ makes its decision, before a staff document analyzing the transaction is presented to the Commissioners, and before providing the public with any knowledge or opportunity. to decide on the commitments invoked to approve the deal, "said the research note.

Why Sprint and T-Mobile want to join forces

The US wireless market is ultra-saturated. Verizon and AT & T dominate the industry.

Following the fallout from Boost Mobile, T-Mobile and Sprint could control up to 127 million wireless customers, compared to the 156 million AT & T and 118 million Verizon, according to companies' financial reports .

That's why both companies have been trying for years to merge. Wireless technology is one of the more capital-intensive industries, with annual maintenance costs and an expansion of tens of billions of dollars. Verizon and AT & T have both launched 5G networks, but Sprint and T-Mobile are lagging behind. If combined, companies can pool resources to reduce costs and create a 5G network faster for their customers.

Sprint and T-Mobile have already discussed a merger. But they abandoned it in 2014 due to concerns over regulatory challenges posed by the Obama administration.

They started talking publicly about a merger in 2017 only to announce that they had stopped talking about it later that year. But in April 2018, they announced their latest merger attempt.

What happens next?

The Justice Department's decision to allow Sprint and T-Mobile mergers eliminates an additional hurdle to federal regulatory approval. But the ongoing pursuit to block state-level rapprochement could complicate matters.

California, New York, Wisconsin and a handful of other states said the merger was anti-competitive because it eliminated a rival and could allow the remaining companies to raise their prices at the same time. T-Mobile has promised not to raise its prices for at least three years after the agreement is reached, but states said that these promises and others were not enough to limit potential damage to the market. competition.

Gene Kimmelman, former antitrust officer of the Department of Justice, heads Public Knowledge, a consumer advocacy organization that opposes the company's plans to challenge the complaint. fusion.

"If the states win the lawsuit, I have to believe that the agreement is torn apart," he said. "The agreement would actually be dead."

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