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The T-Mobile-Sprint deal may close soon: Here's what you need to know

The $26 billion deal isn't done yet. But an end might be in sight.

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Not yet married.

Josh Miller/CNET

T-Mobile is inching closer to getting the Justice Department to sign off on its $26 billion bid to buy Sprint thanks to a deal to sell assets to Dish Network, according to several reports

The merger, which was announced more than a year ago, could bring about a seismic shift in the mobile world. The Justice Department is reportedly working out the final details on an agreement with T-Mobile in which the carrier would sell assets to Dish that would make the satellite TV provider a viable fourth competitor in the nationwide wireless market.  

The Justice Department has yet to approve the deal. The agency has been concerned that reducing the number of nationwide nationwide carriers from four to three would hurt consumers. The Federal Communications Commission, which also must approve the deal, gave its blessing last month

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The deal needs the blessing of both the FCC and the Justice Department. The two agencies usually work side by side on merger reviews and typically agree on whether to approve deals. Experts say it's rare that they'd come to different conclusions. Approval from the Justice Department could also help the company as it faces lawsuits filed by a group of state attorneys general who argue the merger should be stopped because it will harm competition and increase prices.

If the deal is approved, the 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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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 improved when the FCC threw its support behind the deal. But the DOJ concerns left 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. 

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. 

The company codified those promises in a deal with the FCC in exchange for the agency's support. But the Department of Justice still has concerns.  Then there are the lawsuits from the states. A group of 13 state attorneys general and the District of Columbia, led by New York Attorney General Letitia James and California Attorney General Xavier Becerra, filed or joined a multistate lawsuit last month claiming the merger would "deprive consumers of the benefits of competition and drive up prices for cellphone services." 

What's the deal the Justice Department has hammered out? 

The Justice Department reportedly has been looking at Dish as a potential fourth carrier in the wake of the merger. This would answer the agency's concerns that the deal would leave the US wireless market competitive with just AT&T, Verizon and T-Mobile as national players. As part of this deal, Dish would buy additional wireless spectrum from Sprint and T-Mobile, so that it could build its own wireless network. Sprint and T-Mobile would also sell Dish Sprint's prepaid services, Boost Mobile, Virgin Mobile and Sprint prepaid, according to Bloomberg. Also as part of the deal, Dish would get a six- to seven-year wholesale agreement to sell T-Mobile wireless service under the Dish brand, Bloomberg said.

The companies are still working through the details around the network sharing. This could mean that the Justice Department may have a decision as early as next week, the report said. 

Why would Dish want to strike a deal with T-Mobile?

Dish already owns billions of dollars' worth of its own spectrum, but the company has yet to build its own wireless network. Some have accused the company of hoarding valuable wireless spectrum, but it has yet to make a major announcement about the plans for its spectrum. The company has until March 2020 to utilize the airwaves or risk losing its licenses. The satellite TV provider has reportedly been hoping to gain an extension from the government as part of its negotiations to buy the divested assets. 

Purchasing Boost, Virgin Mobile and Sprint wireless prepaid businesses and getting additional airwaves would make it easier and more cost-effective for Dish to finally build a competing network. 

So Dish will be a new fourth carrier? 

Not yet. While reports have circulated in recent weeks that Dish was closing in on a deal with T-Mobile to purchase the Sprint assets, you can never count anything over with Dish co-founder Charlie Ergen until an agreement is officially announced. 

Just days after a report claimed that T-Mobile and Dish agreed on a divestiture deal, a new report Friday from Fox Business Network's Charles Gasparino claimed that "what looked like 'done deal' broke down at least once because of changing deal terms" from Ergen. 

Subsequent tweets claim that Ergen is now "in the drivers seat on terms" with some hoping that Charter Communications, owner of cable brand Spectrum, will jump in and make a bid for the Sprint assets. 

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

In May, T-Mobile negotiated a deal with the FCC that promised 5G coverage to nearly all of the US. It 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.

Specifically, 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 also agreed to divest Boost Mobile, but it will keep T-Mobile's prepaid brand, Metro.

How strange is that the FCC approved the 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?

If the reports are correct, T-Mobile and Dish are close to finalizing a deal that could satisfy the Justice Department's concerns. This could pave the way for the DOJ to approve the deal. Approval from both the FCC and the Justice Department would be a huge win, but that doesn't mean the deal is completely out of the woods yet. The deal still faces lawsuits from the state attorneys general. But experts say the asset sale to Dish and winning that Justice Department's approval would help T-Mobile fight these other lawsuits to block the merger. 

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. Until the deal closes,  T-Mobile and Sprint have to keep operating as independent companies.

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 follow-up 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.

Contributing: Eli Blumenthal

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, July 3, July 5 at 11:15 a.m.:
 Adds background and new information.

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