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DOJ approves $26.5B merger between Sprint and T-Mobile

While the merger between the number three and four players in the wireless market effectively reduces competition, the DOJ has demanded that both companies must sell key assets.
John Legere,Marcelo Claure
T-Mobile CEO John Legere, left, and Sprint CEO Marcelo Claure on the Fox Business Network, in New York, on April 30, 2018.Richard Drew / AP file

The Department of Justice gave its blessing Friday to T-Mobile’s $26.5 billion acquisition of its closest rival, Sprint, after confirming it has reached an agreement with five states that had previously raised objections to the deal.

While the merger between the number-three and -four players in the wireless market effectively reduces competition, the Justice Department has demanded that both companies must sell key assets to the satellite company Dish, which in turn will attempt to create a new wireless service for consumers.

Specifically, Sprint must sell its prepaid phone products, Boost Mobile and Virgin Mobile; and T-Mobile must help Dish develop its new service. T-Mobile and Sprint must provide Dish with 20,000 cell sites and hundreds of retail locations. For the last few years, Dish has been acquiring the wireless spectrum necessary to run a phone service but has not in effect had the ability to switch it on for commercial use.

“With this merger and accompanying divestiture, we are expanding output significantly by ensuring that large amounts of currently unused or underused spectrum are made available to American consumers in the form of high quality 5G networks,” Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division said.

T-Mobile and Sprint have long argued that a merger is necessary since they must compete with Verizon and AT&T. The two market leaders have already invested billions in 5G technology that among other things improves loading times for the internet.

T-Mobile CEO John Legere said in an earlier statement ahead of the deal that “we can’t ignore that AT&T and Verizon still continue to control 80 percent of the Big 4 profitability and have 70 percent of the wireless market share. Even with the merger of Sprint and T-Mobile, Verizon and AT&T would each still have nearly three times the market cap of the combined companies.” Legere has made written commitments not to raise prices during the next three years while the company builds out 5G.

Not everyone is happy about the prospect of what could be a less competitive market, however.

“We have serious concerns. Dish has never shown any inclination to build a nationwide mobile network on its own,” said New York State Attorney General Letitia James in an interview with the media after the Justice deal was announced. “The promises made by T-Mobile to invest in innovation and to maintain low prices are the kinds of promises only robust competition can guarantee. To be clear the free market should be picking winners and losers, not the government and not regulators.”

James accused Dish of repeatedly breaking promises to the FCC about deployment of its spectrum. She declined to discuss whether she believed the White House had played a role in influencing the Justice Department’s decision to OK the deal.

New York is one of 14 States that have sued to prevent the deal moving forward. James said she believes this deal puts competition at risk along with jobs and the possibility of higher prices. In addition to New York, the plaintiffs are California, Colorado, Connecticut, the District of Columbia, Hawaii, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nevada, Virginia and Wisconsin. States that have joined the Justice Department to sign off on the agreement are Attorneys General in Nebraska, Kansas, Ohio, Oklahoma, and South Dakota.

The deal still needs approval from the FCC. Commissioner Jessica Rosenworcel released a statement about the Department of Justice’s approval of the T-Mobile/Spring merger expressing her concerns. “Today the Department of Justice gave its blessing to the largest wireless merger in history. I remain skeptical that this combination is good for consumers, good for competition, or good for the economy.”

Gigi Sohn, a former counselor to Tom Wheeler when he was head of the Federal Communications Commission, told NBC News in a statement, “Given incontrovertible evidence of higher prices and reduced competition, Assistant Attorney General Makan Delrahim should have blocked this merger.”

“A new mobile wireless entrant that starts with zero postpaid subscribers and that must rely on its much bigger rival, the new T-Mobile, just to operate is not a competitor. It's a mobile Frankenstein,” she said.

It will take Dish some time to create a real fourth presence in the wireless industry, Georgetown University Law Center professor Andrew Jay Schwartzman said.

"Dish will start with none of the lucrative postpaid customers, no brand name and no retail network," he said. "Even if Dish successfully builds out its own network, that could not happen for several years, during which time the three big wireless companies will be able to lock in their customers and introduce their 5G technologies.”

The Justice Department is forcing the two companies to sign a consent decree containing binding terms to ensure the companies live up to the agreements they have made. The merger has also been criticized by a dozen state attorneys general, who have sued to stop the merger, according to reports.

Earlier this week, the Justice Department said it would investigate the big technology companies to see if they are behaving anti-competitively. While phone companies have come under less scrutiny on the privacy front, they have also been selling consumer location data, despite promises to the contrary.