Will The Justice Department Fight A Merger Between T-Mobile And Sprint?

The phone carriers claim that joining forces would reduce consumer prices and give 5G networks a jumpstart. But the Trump administration’s idiosyncratic approach to regulation could help or hurt the companies’ chances for a combination.

By Alexandra HartMay 1, 2018 10:21 am| ,

Sunday, the third and fourth largest mobile carriers in the U.S. announced a $26.5 billion plan to merge. A marriage of Sprint and T-Mobile, if approved, would yield a company with more than 90 million customers. But the merger isn’t a done deal yet, and another pending communications merger could shape the outcome – the proposed acquisition of Time-Warner by AT&T. That merger is in court, facing opposition from the U.S. Justice Department.

Dan Primack, business editor at Axios, says this is the third try for the T-Mobile and Sprint merger. The last attempt, four years ago, foundered amid fears that the Obama administration would oppose it on antitrust grounds. Now, the two companies need each other more than they did last time around.

“They are distant 3 and 4,” Primack says. “They are not nipping at the heels of Verizon or AT&T, who are the leaders.”

Primack says the terms of this merger are different, too. Last time, Sprint owner Softbank wanted control of the merged company. The Japanese conglomerate now realizes this isn’t possible, he says.

“T-Mobile would control this combined company,” Primack says. “The combined company would be called T-Mobile, the CEO would be from T-Mobile, and T-Mobile’s owner, which is in Germany, would have control of the company from a stock perspective.”

The T-Mobile-Sprint combination would be a horizontal merger, combining two firms in the same business. AT&T-Time Warner would represent a vertical merger. The two companies perform different functions; the former in telecommunications and the latter in media. The difference matters to regulators, Primack says.

“Antitrust regulators usually care about mergers in the same industry – a retailer buying another retailer, a phone company buying another phone company,” he says. “Because what they’re really concerned about is a consolidation or a concentration of power which could impact prices for consumers. Usually they don’t mind if a company in one space buys [a company in] another.”

Primack says it was highly unusual for the Department of Justice to sue to stop AT&T from merging with Time-Warner. He says the unpredictability of the current regulatory environment makes it hard to know whether the government will try to stop T-Mobile and Sprint.

“Under traditional antitrust rules, you would expect that the Department of Justice would at least raise some serious questions for Sprint ant T-Mobile, probably ask for some divestitures.”

For consumers, Primack says, fewer phone providers typically means less choice. The companies’ counterargument is that a stronger, combined T-Mobile-Sprint could better take on Verizon and AT&T than the two companies have been able to to separately.

“They’re also making a jobs argument,” Primack says. “That’s not something regulators usually care about one way or the other. But clearly, they’re playing to the White House there, and saying ‘this is your economic message. This is good for PR for you.’”

On the technical front, the phone carriers say that combining will allow them to develop a 5G communication network quicker because they’ll have more resources.

Primack says it could be awhile before the DOJ wades into the proposed merger, given its current tangle with AT&T-Time Warner.

Written by Shelly Brisbin.