The decision by Federal Communications Commission Chairman Ajit Pai to support the merger of T-Mobile US and Sprint, though not the last and most-fundamental hurdle for the plan, clears a major obstacle. In his public comments, Pai has emphasized the value of the deal for accelerating 5G and improving broadband coverage in rural areas, as well as deploying more mid-band 5G spectrum quickly.
“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,” he said. “The commitments made today by TMobile and Sprint would substantially advance each of these critical objectives.”
“The companies have committed to deploying a 5G network that would cover 97 percent of our nation’s population within three years of the closing of the merger and 99% of Americans within six years,” said Pai.
“Additionally, T-Mobile and Sprint have guaranteed that 90 percent of Americans would have access to mobile broadband service at speeds of at least 100 Mbps and 99 percent would have access to speeds of at least 50 Mbps.”
As a matter of policy, it is hard to quibble with those positions, as all would be deemed “in the public interest,” which is the test the FCC must apply.
The non-public background might well include other elements, such as speeding 5G deployment in the wake of the U.S. ban on technology sales to Huawei, seen as the global leader, in shipments and price, of 5G infrastructure. Critics of such policies have argued such actions would slow 5G progress.
Also, some might speculate, Sprint’s ability to avoid bankruptcy could hinge on a successful deal. So the unstated issue there is the public interest impact, were Sprint to go out of business. Nobody would ever expect such a consideration to appear in the public record, but it obviously is one of the potential implications of denying the merger approval.
Some of us long have held that the Department of Justice approval, not FCC blessing, was the key hurdle. The problem is the HHI screen always used by the DoJ when looking at antitrust implications of mergers. There have been recent signs that the merger as structured would not be approved by DoJ.
What room T-Mobile US and Sprint might have to meet such objections is not clear. Spectrum divestments have been suggested as a possible merger concession. But if rapid mid-band 5G and faster rural broadband are among the desired outcomes, new T-Mobile US cannot divest much of that spectrum.
Other possible structural remedies, such as divesting accounts, would seem to fly in the face of the objective of gaining scale, though the firms have agreed to divest Boost Mobile, a big MVNO supported by the Sprint network.
The big problem is that the DoJ’s methodology shows the U.S. mobile market already is concentrated, and the T-Mobile US deal with Sprint would increase the amount of concentration.
The Justice Department will generally investigate any merger of firms in a market where the Herfindahl-Hirschman Index (HHI), a test of market concentration, exceeds 1000 and will very likely challenge any merger if the HHI is greater than 1800.
The U.S. market has an HHI of about 2500.
Three years ago, the very same proposed transaction would have occurred where the U.S. market had an HHI score of about 2,766. But following a merger of Sprint and T-Mobile, the score would be 3,252.
The last time Sprint and T-Mobile US tried to merge, three years ago, Craig Moffett of MoffettNathanson calculated that the wireless industry currently had an HHI score of 2,766.
But following a merger of Sprint and T-Mobile, the score would be 3,252. That suggests an increase in concentration of about 486 points. So the DoJ opposition should not come as a surprise.
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