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Trump may have tech on edge, but your phone company likes him

Broadband and wireless providers haven't felt much love from the Obama administration. They're hopeful for change under President Donald Trump.

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President-elect Donald Trump pauses with Softbank CEO Masayoshi Son at Trump Tower Tuesday. Japan's Softbank, which controls Sprint, has agreed to invest $50 billion in the US.

Spencer Platt, Getty Images

The signs are pointing in the right direction for telecommunications companies during a Donald Trump presidency.

Trump's transition team is full of critics of the Federal Communications Commission's net neutrality rules, which imposed old-style telephone regulation on the internet. There are indications a Trump administration may be much friendlier to big mergers and acquisitions than was President Barack Obama's team.

The quick warming up of the telecommunications companies to Trump -- a contrast from the wariness that many in Silicon Valley feel about the president-elect -- reflects eight years of an Obama administration that seemed to favor big internet companies.

Phone companies say a friendlier relationship with government could lead to more investment in broadband and other services, and thus better access to high-speed internet services and more innovative products for consumers. But critics say deregulation and more industry consolidation will only help cable and wireless giants shut out competition, which ultimately means fewer choices and higher prices.

Conversely, tech companies still don't know what to make of Trump. What he's said on the campaign trail or in Twitter rants suggests some of his ideas -- such as restrictions on skilled immigrant workers, backdoor encryption access on consumer products and high tariffs on products made overseas to encourage more manufacturing jobs in the US -- will directly conflict with the interests of tech companies like Apple, Facebook and Google.

Trump reportedly plans to meet with a group of tech-industry leaders next week.

Telecommunications executives, meanwhile, are already lining up to get in his good graces. Masayoshi Son, the CEO of Japan's Softbank, which controls Sprint, announced Tuesday from the lobby of Trump Tower that he would invest $50 billion in the US and create 50,000 new jobs, according to The Wall Street Journal.

AT&T CEO Randall Stephenson, whose planned $85 billion acquisition of Time Warner will be decided by regulators under Trump, has already signaled he sees the incoming administration as a positive. He said Tuesday at an investor conference in New York that he was encouraged by Trump's comments about decreasing corporate taxes and easing regulations.

"Economists are underestimating the impact of pulling back regulation and tax reform," Stephenson said. "There's an impact to this, and it's more than people are anticipating."

T-Mobile Chief Financial Officer Braxton Carter likewise pointed to tax reform and lighter regulations as a potential boon. Verizon CEO Lowell McAdam said it's still too early to adjust the company's strategy because of Trump.

Net neutrality

It's almost certain a Trump-led FCC will dismantle net neutrality. The three people leading Trump's transition effort for the agency -- Roslyn Layton, Jeffrey Eisenach and Mark Jamison -- are all affiliated with the conservative American Enterprise Institute, and they've each argued against the existing rules, especially those that reclassified broadband as a public utility, which applies to broadband many of the same strict regulations designed for the old-school telephone network.

Layton has been particularly outspoken in favor of the practice of zero rating, which selectively offers some service to customers without driving up data charges. Critics say that in the long run such practices stifle competition, leading to higher prices for consumers and fewer innovative services.

Ultimately, how aggressive the FCC is on this issue and other aspects of deregulation will come down to who Trump picks as FCC chairman. A former ally of Vice President-elect Mike Pence, Brandt Hershman, a longtime Indiana state senator, seems to be the frontrunner for the job. Little is known about Hershman's specific stances, but he did author an Indiana law a decade ago to deregulate telecommunications. That bill ended government regulation of phone rates, freed cable companies from needing to get dozens of local licenses to offer service and stopped cities and towns from setting up their own municipal broadband services.

While the dismantling of net neutrality rules would be good news for broadband and wireless companies, internet companies, which fought for the regulation, will likely see this as a setback.

Taxes and tariffs

Trump has repeatedly talked about lowering the corporate tax rate from 35 percent to 15 percent, which could benefit tech companies and telecommunications providers alike. Exactly how much benefit they'd get from these cuts is to be debated. Clearly AT&T and T-Mobile see upside for their businesses.

"We welcome corporate tax reform," said Mike Cavanaugh, CFO of Comcast, at the UBS investor conference in New York on Wednesday. "We feel very hopeful about the new administration and what it could mean."

But at the same time, Trump also wants to bring back manufacturing jobs to the US. In a tweet over the weekend, he threatened to impose a 35 percent tariff on products made overseas by US companies and imported here for sale. This is bad news for companies like Apple, which manufactures its computers and mobile devices in China. Nearly a year ago on the campaign trail, Trump called out Apple for building its products outside the US.

Neither Apple nor representatives from Trump's team responded for comment.

Mergers

One of the biggest benefits to the telecommunications industry could be a more merger-friendly attitude. While candidate Trump was not a fan of AT&T's $85 billion bid to buy media giant Time Warner, there's reason to believe that President-elect Trump may have softened his stance.

When the deal was first announced, Trump said from the campaign trail that he saw the tie-up as "too much concentration of power in the hands of too few."

But now analysts say the Trump administration is likely to support the deal. Trump's transition team also includes Joshua Wright, a former Federal Trade Commissioner who in a recent New York Times opinion article criticized the Obama administration for its "anti-merger fervor."

"Given the changes that are coming, I really do think you're going to see a lot of evolution and a lot of excitement," Carter said.

This comes after the Obama administration nixed a deal between AT&T and T-Mobile and sent signals against a tie-up between Sprint and T-Mobile. Regulators also put the kibosh on Comcast gobbling up Time Warner Cable.

Still, industry experts and policy wonks in Washington are largely left reading the tea leaves based on the people with whom he's surrounding himself.

"Based on his unpredictable personality, it's hard to say what he'll do," said Matt Wood, policy director for the advocacy group Free Press. "He's a wild card."

First published December 7 at 9:35 a.m. PT.
Updated at 10:27 a.m. PT: Added comment from Comcast.

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