FCC Chairman Backs T-Mobile and Sprint Merger

But what the US regulator giveth, the Justice Department can taketh away

In a story that doesn’t seem to have an ending, the potential merger between US mobile carriers T-Mobile and Sprint has had another roller-coaster week. The deal was struck just over a year ago in 2018 (see Instant Insight: T-Mobile and Sprint Agree Merger Deal).

On Monday, in a major boost for the deal, chairman of the US Federal Communications Commission (FCC), Ajit Pai, said he’ll recommend that his agency approve the $26.5 billion merger. Although the deal raises concerns about reduced competition in the wireless industry, the two carriers have been trying to ease these worries by highlighting the potential of greater mobile and fixed-line connectivity across the US as the industry starts rolling out 5G.

Mr Pai’s recommendation comes with some conditions. The carriers said to the FCC they would sell Sprint’s Boost prepaid brand, build an advanced 5G network over three years and pledge not to raise prices while the network is being built. Under the new plan, the combined entity keeps the Metro by T-Mobile and Virgin Mobile sub-brands.

But just two days later, the US Department of Justice recommended to block the deal, citing fears over competition. Reportedly, it doesn’t consider that the proposed remedies go far enough. This is a crucial hurdle for the deal that will likely ensure the outcome remains in the balance right up to the final decision. As things stand now, the subscriber total of T-Mobile and Sprint, dubbed the New T-Mobile, would make it a significant new challenger. The post-paid phone numbers add up to 64.5 million for 29% of the US post-paid phone market — AT&T has just under 29% and Verizon has about 40%. The two carriers’ prepaid subscriptions combine to reach 30 million, well ahead of the market leader, virtual provider TracFone, which has almost 22 million subscriptions.

In addition to spinning off the Boost prepaid brand, as part of the lobbying efforts to get the deal through, the carriers have committed to building a low-band spectrum 5G network that covers 97% of the US population within three years, using T-Mobile’s 600 MHz spectrum. This includes covering 85% of rural areas. Within six years, the network is expected to cover 99% of the country and at least 90% of rural areas. They would also cover 75% of the US population within three years using mid-band spectrum, taking advantage of Sprint’s prized 2.5 GHz spectrum assets.

The New T-Mobile has also promised to introduce an in-home broadband service “priced significantly below incumbent provider prices”, a reference to AT&T, Charter and Comcast, among others. The companies agreed to pay penalties ranging from $10 million to $250 million if they missed any of their commitments.

The leadership teams of the two carriers see a 5G opportunity by combining their spectrum, which can be described as a convenient and practical mix, allowing for good propagation at one end, and good throughput at the other.

T-Mobile and Sprint certainly have a plan B, and would be likely to offer more concessions. There’s something that feels inevitable about this deal.