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T-Mobile/Sprint merger wins FCC thumbs-up on 5G promises

T-Mobile may be about to get its merger with Sprint after all. But it still needs approval from the DOJ.

T-Mobile

The T has always stood for T-Mobile. Someday it may stand for Sprint as well.

NurPhoto/Getty Images

The long-planned merger between T-Mobile and Sprint has overcome a major hurdle as the companies made concessions to ease a key regulator's concerns about whether the deal would benefit consumers.

The chairman of the Federal Communications Commission, Ajit Pai, signaled the shift early Monday. Pai said in a statement that he will recommend to his colleagues that the FCC approve the proposed $26 billion deal.

"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," Pai wrote. "The commitments made today by T-Mobile and Sprint would substantially advance each of these critical objectives."

But the deal isn't out of the woods yet. The US Department of Justice also has to approve it, and the agency hasn't yet issued a statement on whether the concessions to the FCC will be enough. On Monday, Bloomberg reported the department's antitrust section might try to block the deal. 

Among the concessions, according to Pai: Within three years of the deal closing, the companies plan to have a 5G network that covers 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.

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The companies also have guaranteed, Pai said, that 90% of Americans would see mobile broadband service at speeds of at least 100 Mbps and that the combined entity would roll out an in-home broadband product.

In a blog post Monday, T-Mobile CEO John Legere said that the merged company, called the New T-Mobile, will "cover 97% of the U.S. population with 5G on low-band spectrum and 75% of the population with 5G on mid-band spectrum" in three years, with an additional focus on using 5G to provide an alternative to traditional home broadband. 

T-Mobile recently announced it was beginning to trial using its 4G LTE for home broadband, while Sprint last week said that its HTC 5G Hub, a hotspot intended to replace a traditional modem and router, will be available in its first 5G markets on May 31.

Just now starting to be put into service around the world, 5G promises to greatly enhance the speed, coverage and responsiveness of wireless networks. It's expected to be 10 to 100 times speedier than a typical cellular connection, and even faster than service over a physical fiber-optic cable going into your house. In the US, both Verizon and AT&T have launched mobile 5G networks in limited areas.

Bidding bye-bye to Boost Mobile

In addition to promises for 5G rollout, Legere also says that as part of the deal the New T-Mobile will divest Boost Mobile, Sprint's prepaid provider and a rival to T-Mobile's own Metro. 

"We'll work to find a serious, credible, financially capable and independent buyer for all the assets needed to run – and grow – the business," Legere wrote. "And we'll make sure that buyer has attractive wholesale arrangements."

T-Mobile has agreed to allow the FCC to approve or deny the divestiture agreement between T-Mobile and Boost, according to FCC officials. The agency said it focused on Boost to address concerns about shrinking competition in the lower-cost end of the market. But there were no concessions made to address consolidation in the postpaid market.

Legere also reiterated T-Mobile's promise to keep prices at "same or better" levels for three years.

If the companies fail to fulfill their commitments to the FCC, T-Mobile could face penalties up to $2.4 billion, according to the FCC. "These consequences ... create a powerful incentive for the companies to meet their commitments on time," Pai said.

Critics of the merger said they're still unsatisfied. 

FCC Commissioner Jessica Rosenworcel, who has opposed this deal, said in a tweet that she's still unconvinced the merger is in the best interest of consumers.

"We've seen this kind of consolidation in airlines and with drug companies," she said. "It hasn't worked out well for consumers. But now the @FCC wants to bless the same kind of consolidation for wireless carriers. I have serious doubts."

Gigi Sohn, an adviser to former FCC Chairman Tom Wheeler and a consumer advocate, said that even with the conditions the deal is still "anticompetive and anti-consumer." Sohn said she doesn't believe the FCC will be able to enforce them. 

"Does anyone really believe that this FCC, which has asked nothing of the big mobile companies for over 2 years will require the companies to abide by these commitments?" she said. "Moreover, they are the type of behavioral conditions that Assistant Attorney General for Antitrust Makan Delrahim has said time and again are unenforceable and over-regulatory."

In April, a Wall Street Journal report suggested that some in the Justice Department were concerned that combining the nation's third and fourth largest carriers would harm competition. 

In subsequent tweets, Legere and Sprint chairman Marcelo Claure each disputed the report, with Legere calling the premise "untrue." 

It would be unusual for the DOJ to come to a different conclusion than the FCC on the merits of the merger. But the two agencies evaluate mergers on different standards. The DOJ looks at antitrust concerns, while the FCC must consider whether the merger is in the public interest.

Sohn said in an interview that she finds it hard to believe that Justice Department could sue to stop AT&T's merger with Time Warner Media and approve the T-Mobile/Sprint merger, especially since the latter deal would reduce the number of national wireless carriers from four to three. She added that the FCC also got no commitments from the companies to address concerns that the new T-Mobile would provide reasonable roaming rates to rural operators nor any commitment to keep wholesale pricing low. 

"The handful of unenforceable promises made by the merging companies does no more than put lipstick on a pig," she said. "This classic 4-3 horizontal merger is bad for consumers and competition and the DoJ and the FCC should block it."

Shares of both companies jumped after Monday's news broke, with Sprint soaring over 23% to $7.64 in early trading and T-Mobile rising nearly 5% to $79.26. 

News of the new concessions was first reported by Reuters, via CNBC

Originally published May 20 at 6:01 a.m. PT
Update, 2:57 p.m. PT: Updated to reflect possible DOJ challenge. Updated earlier with new information, comments and background matter.