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T-Mobile and Sprint merger: Here's what you need to know

The $26 billion deal isn't done yet.

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Not yet married.

Josh Miller/CNET

T-Mobile and Sprint have gotten the blessing of the top US telecom regulator as they inch closer to a merger that could bring about a seismic shift in the country's mobile world. The deal, however, isn't done yet.

In April 2018, the two carriers unveiled a $26 billion merger, a combination that would bring together the country's third- and fourth-largest wireless service providers. The combined company would retain the T-Mobile name, and T-Mobile CEO John Legere and his management team would run day-to-day operations.

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Ajit Pai, the chairman of the Federal Communications Commission, gave the deal his blessing on Monday after negotiating several conditions. Those included build-out requirements to ensure 5G deployment in rural communities, a promise to offer wireless home broadband that could substitute for a wireline, and the divestiture of Boost Mobile, a prepaid brand.

As a result, Pai says the deal will further the agency's two main objectives: closing the digital divide in rural America and accelerating the US leadership in 5G. The FCC's two other Republican commissioners, Brendan Carr and Michael O'Rielly, have also said they support the merger.

Confidence the deal will help consumers, however, may not extend to the Justice Department. Several reports have suggested the department, whose approval is also needed for the merger to proceed, doesn't think the concessions go far enough to satisfy antitrust concerns. 

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The FCC and the Justice Department usually work side by side on merger reviews. Typically they agree on whether to approve deals. Experts say it's rare that they come to different conclusions.

The deal comes at a time when the US carriers are bending over backward to win your business, with offers like unlimited data and freebies, such as access to Netflix. Sprint is still giving away a year of service for free. Those competitive pressures have driven T-Mobile and Sprint together. And while executives from both companies vow lower prices and better service, consumer groups and analysts are skeptical.

Indeed, some senators are seeking to kill the deal. T-Mobile and Sprint executives have appeared before lawmakers twice to make their case. In a bid to convince regulators, T-Mobile hired a former commissioner with the Federal Communications Commission and vowed not to raise prices.

Worried about how this might affect you? CNET breaks down everything you need to know about this mega mobile merger.

Why a merger?

T-Mobile and Sprint have long courted each other. The logic is simple: Verizon and AT&T are far bigger than either of the two companies. A merger would create a stronger competitor.

Why now?

Actually, T-Mobile and Sprint tried twice before. Back in 2014, Sprint parent SoftBank floated the idea of a deal with T-Mobile, but regulators and the White House were keen on keeping four national competitors.

The current administration and the FCC are more open to deals, which is why both sides got close to a deal in 2017. The deal fell apart in late 2017 when SoftBank and T-Mobile parent Deutsche Telekom couldn't agree on how much control each side would get. 

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Then President-elect Donald Trump stands with SoftBank CEO Masayoshi Son.

Spencer Platt/Getty Images

So this deal is a slam dunk, right?

Nope. Since the deal was announced more than a year ago, analyst opinions on whether the merger will get regulatory approval have hovered around 50-50. The odds have improved with the FCC throwing its support behind the deal. But the reported DOJ concerns leave some doubt on the outcome. Remember, the government sued to kill a deal between AT&T and Time Warner, and those two companies weren't competing against each other. The DOJ ultimately lost that case. But antitrust experts say the government's challenge of AT&T/Time Warner came out of left field, which makes it hard to predict what it'll do with the T-Mobile/Sprint merger.

T-Mobile and Sprint have pushed the idea that the merger would create jobs, largely thanks to the combined company's investment in 5G. In January, they said they'd build five customer service centers after the deal closed. They've also promised to freeze prices for the next three years. And they've been promising a nationwide build-out of their 5G network, along with a new service to offer rural broadband customers a fixed wireless broadband solution. 

And now the company has codified those promises in a deal with the FCC in exchange for the agency's support.

What specifically has T-Mobile promised the FCC it would do?

As part of the FCC's deal, the new T-Mobile would meet several 5G network coverage benchmarks. For instance, within three years the company will provide 5G service to 97% of the US population, and within six years 99%. For rural Americans, the coverage would be 85% within three years, and 90% within six.

T-Mobile has also promised to offer a broadband alternative to rural customers and has guaranteed that 90% of Americans will see mobile broadband service at speeds of at least 100Mbps if the deal is approved. In addition to promises for 5G rollout, T-Mobile has agreed to divest Boost Mobile, Sprint's prepaid provider and a rival to T-Mobile's own Metro.

Sounds like a pretty good deal. What's the problem?

Consumer advocacy critics say that none of these conditions address issues of competition. For instance, even though T-Mobile agreed to divest Boost, its prepaid plan, the merger would still reduce the number of nationwide post-paid carriers from four to three. In 2011, the Justice Department rejected AT&T's takeover of T-Mobile because it concluded it'd be bad for consumers to reduce the number of nationwide players to three. The Sprint/T-Mobile merger would also reduce the number of players in the wholesale wireless market and could possibly affect roaming rates for rural wireless carriers.

Critics also point out that T-Mobile's promises to build out its networks in rural America are unverifiable and full of loopholes. While the FCC says T-Mobile has agreed to pay for network testing to verify build-out obligations and would be subject to annual fines up to $2.4 billion if it doesn't comply, the fine print of the agreement could allow the company to shirk its responsibilities.

How strange is it for the FCC to approve a merger before the DOJ?

Experts say it's very strange, especially when the core issues around the merger center on antitrust concerns. It's especially unusual given that Pai has in the past deferred to the DOJ when similar issues have come up in other mergers. 

The DOJ has declined to comment, except to say that it evaluates mergers by a different standard than the FCC. The FCC merely has to find whether a merger is in the "public interest." But the DOJ must investigate whether a merger violates antitrust law. 

What's strange about this case is that Pai has let the DOJ take the lead on past mergers involving similar antitrust issues, suggesting that if the DOJ is satisfied a deal won't harm consumers then it must inherently be in the "public interest." This was exactly the case in 2017 when the FCC under Pai followed the Justice Department's lead in evaluating a merger between Level 3 and CenturyLink, a transaction that also relied heavily on antitrust and competition analysis. The DOJ found no antitrust concerns and approved the merger. The FCC did as well. 

The FCC also isn't commenting on why it issued its decision ahead of the DOJ. But a spokesman for the agency tried to downplay the situation during a call with reporters, saying the two agencies often release statements separately.

What could happen next?

There are a few scenarios of how this may play out. If the DOJ disagrees with the FCC and finds there are antitrust concerns, it will have to sue the companies if it wants to stop the merger. But it's also possible the DOJ could add more conditions to the deal. Exactly, what those conditions would be are hard to say. It could eliminate the loopholes in the already agreed-upon build-out requirements.  It could also make more substantial structural changes to the deal and require the companies divest wireless spectrum or other parts of their businesses. 

What's with the hotel controversy?

The day after T-Mobile and Sprint announced the deal, several high-level T-Mobile executives opted to stay at President Donald Trump's Trump International Hotel, according to The Washington Post. Executives became frequent guests of the hotel, which critics say is an attempt to curry favor with the current administration.

Legere denied any wrongdoing in an interview in February.

OK, but how does this affect me?

In the near term, nothing changes. The deal is supposed to close in the first half, so T-Mobile and Sprint have to keep operating as independent companies until then.

T-Mobile Chief Operating Officer Mike Sievert said in an interview that Un-carrier events are still planned for this year as the status quo remains.

Sprint customers get one near-term benefit: The company struck a roaming deal to let its customers ride on the T-Mobile network if Sprint isn't available, which should yield better coverage in more places. 

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T-Mobile CEO John Legere would lead the new combined company.

CNET

What happens if the deal closes?

That's the $26 billion question. T-Mobile and Sprint promise a combined network that'll deliver better service at lower prices. They argue that their combined scale would help them build out a faster, more efficient network.

"This competition will result in lower prices for Americans," T-Mobile's Sievert said. "It will probably result in lower prices across the board."

But consumer advocacy groups are saying the deal raises red flags. 

"If the national wireless market shrinks from essentially four companies to three, history suggests the negative impact on competition would mean higher prices for many people," said Jonathan Schwantes, senior policy counsel for Consumers Union.

So prices could go up?

The companies have agreed to not raise prices for three years if the deal goes through. But after that, all bets are off. There's a reason why Wall Street likes this deal: Financial analysts think the industry is a little too competitive and that removing one player could ease the pressure.

But given the entrenched positions of Verizon and AT&T, the combined company might still need to pull out all the stops to stay competitive.

"It doesn't matter if you have three or four killers in the room going at each other," said Roger Entner, a consultant with Recon Analytics. "There will be blood on the ground." 

Lopez Research analyst Maribel Lopez said she doesn't buy the idea of lower prices but that she suspects pricing will remain neutral after the deal. 

Didn't Sprint's Marcelo Claure say 5G would be an opportunity to increase prices?

Yep. Claure, now executive chairman of Sprint, said during a keynote address at the Mobile World Congress trade show in March that he sees 5G as an opportunity to charge more, because it would be considered a premium service.

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Sprint CEO Marcelo Claure speaking at MWC 2018. He said then that 5G was an opportunity to charge more for service. 

Roger Cheng/CNET

In an interview in April 2018, Claure said the comments referred to the idea of building a 5G network for just the Sprint base. Combining T-Mobile's and Sprint's assets and building for a much larger base would mean an opportunity to lower prices.

"This changes the game," Claure said.

What happens to existing plans?

T-Mobile's Sievert declined to comment on what the companies plan to do with many of the ultracompetitive grandfathered plans that customers have clung to. T-Mobile has generally been good about honoring existing plans within its own service, but it's unclear what it would do with Sprint's plans.

How would the migration happen?

The companies say it would take about three years to migrate customers over to the T-Mobile network. Though both companies support LTE, T-Mobile's older network is based on a technology called GSM, and Sprint's is based on CDMA -- two incompatible networks.

Fortunately, popular phones like some Samsung models and the iPhones on Sprint can run on T-Mobile. Sievert says there are about 20 million Sprint phones that are compatible on T-Mobile.

Eventually, the idea is to get everyone onto the T-Mobile network.

What about 5G?

One of the critical parts of T-Mobile and Sprint's argument for merging is the move to 5G. The companies say neither can build the 5G network they want without a combination, though that hardly would've been the rhetoric had you asked either side before this deal was announced.

The case for 5G leadership is tailor-made for the White House, which killed a proposed takeover of Qualcomm by Singapore-based Broadcom because it threatened the US' position in regard to the next-generation wireless technology. 

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T-Mobile and Sprint say they'll invest roughly $40 billion over the next three years on 5G, potentially creating new jobs. 

"We can drag the rest of the players kicking and screaming to the prize, which is American leadership in 5G," Legere said on a call with analysts in February.

In a followup interview, Legere touted 5G's ability to drive value for the country.

"There's a secondary game on 5G that's yet to be played," he said, alluding to businesses that could spring up because of the faster and more responsive network.

How does this combination help with 5G?

It's all about spectrum, or the radio airwaves each company holds. T-Mobile owns a large swath of lower-frequency spectrum, which is great for covering long distances, but at lower speeds. It also has a super-high-frequency band known as millimeter wave spectrum, which gives you greater speed and capacity, but at a short range.

Sprint has plenty of spectrum in the midband, a sort of compromise between the two.

The combined portfolio of radio airwaves provides superior coverage in terms of both speed and capacity, particularly in rural areas.

"As we move forward and drive this major investment in a combined network, every dollar we spend here will be a 5G dollar," said T-Mobile Chief Technology Officer Neville Ray.

Can their 5G replace your home broadband? 

Verizon has been testing 5G as a replacement for resident internet access, an idea that both T-Mobile and Sprint previously scoffed at.

But they're changing their tune. T-Mobile's Sievert said the merged companies would be able to put together a combined network that delivers average nationwide speeds of 450 megabits per second, or 15 times current average speeds. As part of its commitment to the FCC, T-Mobile has promised home broadband speeds of at least 25 Mbps with speeds averaging around 100 Mbps.

The combined network could potentially offer consumers in rural areas an alternative for home broadband service -- even if it's marketed as a wireless service. That's a key difference from Verizon's initial deployment of 5G, which is meant to be a replacement for home broadband, complete with home modem.

"It's purely a way to compete with cable, as opposed to the realities of what we're creating," Legere said.

First published April 29, 2018, 10:36 a.m. PT.
Update, Feb. 13 at 5 a.m. PT, May 22 at 2:45 p.m. PT:
 Adds background and new information.

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