DoJ doesn’t share FCC enthusiasm for T-Mobile/Sprint – report

The FCC might have a skip in its step after securing concessions from T-Mobile US and Sprint ahead of the proposed merger, but the Department of Justice is not convinced.

Following the approval from FCC Chairman Ajir Pai, and the vote of support from Commissioner Brendan Carr, Sprint share price rose almost 19%. The long-awaited merger to create a genuine challenger to AT&T and Verizon on a national scale looked to be heading in the right direction, only for the DoJ to be the fly in the ointment.

According to Bloomberg, the DoJ believes the concessions made by the pair do not go far enough. This is a move which breaks with tradition, generally the FCC and the DoJ sing from the same hymn sheet when it comes to acquisitions and mergers, though it appears antitrust investigators are still concerned over the threat to competition.

This is perhaps the nuance between the two departments. The DoJ, and various Attorney Generals throughout the US, are primarily concerned with competition, while the FCC rhetoric has been more focused on securing a more efficient and broader 5G rollout.

The concessions have taken the form of three commitments. Firstly, T-Mobile suggests 97% of the population could be covered by 5G within three years. Secondly, Sprint’s prepaid brand Boost would be sold to preserve competition. And finally, there would be no price increases while the 5G network is being deployed.

Of course, there is a very real risk to competition. Taking the number of national telcos from four down to three will mean less choice in the market. Less choice means less opportunity for disruption, even if the hatred from T-Mobile US CEO John Legere towards AT&T and Verizon is effectively teemed from his ears. There are too many examples through history of abuses when it comes to competition for some to be completely comfortable.

You also have to weigh up the current cost of mobile connectivity in the US. Although much has been done to help the consumer, ARPU is still notably more than in Europe, where competition is significantly higher. According to Moneysavingpro.com, the average postpaid contract in the US is as much as $80.25 compared to $30.06 in the UK. US consumers are already feeling the sharp end of the competition stick, and few would want to risk this difference to increase further.

The question is how much pain the consumer can tolerate in pursuit of leadership in the 5G race. Carr has spoken of his primary role at the FCC being focused on creating a leadership position for the US in the 5G era and part of this will depend on getting 5G in the hands of the consumer as quickly as possible. The sooner consumers have 5G, the sooner US firms can scale new services and products before assaulting the international markets. This is a playbook taken from the very successful 4G era.

With the US taking a leadership position in the 4G world, companies like Google, Amazon, Uber, AirBnB and Lyft thrived. These are companies which would have existed without the 4G euphoria, but success was compounded because of the connectivity gains. We are likely to see the same trend in the 5G world, with new products and services being designed for 5G connectivity. The question which remains is where they will call home.

This is the equation the FCC and the DoJ have to balance. The need to protect the consumer against the drive towards future economic success on the global stage. There is not going to be a perfect answer for this one, the US is gambling on the future success of the economy after all.

T-Mobile/Sprint merger approval is still hanging in the balance

The US DoJ’s anti-trust chief has not made up his mind on the T-Mobile/Sprint merger case, saying the deal must meet key criteria.

Speaking on CNBC (see below) Makan Delrahim, Assistant Attorney General for the US Departments of Justice’s Antitrust Division, said he has not made up his mind yet. Although he refused to comment on if his staff resisted the deal, as was reported by the media, Delrahim did allude to more data being requested from the two parties.

Delrahim also dismissed the notion that there is any magical number of competitors to deliver optimal competition in a regulated market like telecom. Any proposed deal needs to deliver efficiency, but the efficiency needs to be both merger specific, that is the efficiency cannot be achieved through other means, and verifiable.

With regard to the effects of the merger on consumers, Delrahim listed two items, price effect and coordinated effect. The first is related to the potential price move up or down after the merger. The second refers to if the merged company has the incentive to continue to compete with the existing competitors on price, in this case AT&T and Verizon. 5G will also factor in the DoJ’s decision making consideration, Delrahim said. But, instead of being positioned as a counteract against China, in this interview Delrahim was treating 5G in the framework of service offer to consumers, and the merger’s impact on it.

When being asked on the timeline, Delrahim said there is no deadline on the DoJ side, except that the deal cannot be completed before a certain date. This timeline can be extended if more deliberation is needed.

On the FCC front, another hurdle that the two carriers need to overcome before they can become one, they continued to play the offensive. Last week representatives from the two companies, including John Legere, the CEO of T-Mobile, and Marcelo Claure, Executive Chairman of Sprint, called on the FCC commissioner Jessica Rosenworcel and her Legal Advisor. The team presented the updated merger case, including their pledge to deploy home broadband, drive down prices, deliver more benefits to prepaid customers, and create, instead of cutting, jobs.

FCC’s unofficial 180-day consultation period was reopened early this month, after being halted three times, and is now on day 147.

Makan Delrahim’s CNBC interview is here:

 

 

DoJ rumoured to be half-convinced by T-Mobile/Sprint 5G argument

The anti-trust chief in the Department of Justice is said to be receptive to T-Mobile and Sprint’s argument that the combined company will improve America’s competitiveness in 5G.

Fox Business reporter Charlie Gasparino claimed people close to Makan Delrahim, Assistant Attorney General for the DoJ’s Antitrust Division, have disclosed that the department is receptive to the argument that a third strong operator in the US will help the country compete better with China.

Gasparino first tweeted about his “Scoop sources” before he went on the screen:

As we reported earlier, the proposed merger still needs to overcome two barriers before it can be completed: the DoJ and the FCC. Gasparino explained that, unlike the FCC which needs a panel decision, the DoJ’s decision rests on Delrahim’s office alone. It looks that the argument for 5G competitiveness from the merger is outweighing his concerns for anti-trust consequences. Also significantly, Gasparino said, the FCC tends to follow the DoJ’s decision in cases like this.

5G has always been a central argument in the merger case. In its public interest statement published in June 2018, the companies stressed the investment commitment and the benefits the New T-Mobile would bring to America. $40 billion in the development of a nationwide 5G network and services will be made by 2024. “The New T-Mobile network will have approximately double the total capacity and triple the total 5G capacity of T-Mobile and Sprint combined, with 5G speeds four to six times what they could achieve on their own,” the companies said in the close to 700-page document.

The argument of competing with China on 5G with a third strong operator comes days after the companies claimed the merger would benefit up to 50 million Americans who currently do not have access to broadband, when T-Mobile launched its LTE FWA trial.

Meanwhile, the position of FCC is not getting clearer. On 7 March, for the third time, the agency put a hold on its 180-day countdown to gather feedback while ploughing through new information, which, FCC detailed, is related to the extension of a simulation model for the merger provided by the companies. The Commission will re-open the countdown at day 122 on 4 April.

The market was encouraged by the news. Both companies’ share prices grew following Gasparino’s tweet. T-Mobile closed the day up by 1.42%, and Sprint’s up by 1.75%.

US DoJ throws $85 billion spanner in the works of AT&T-Time Warner

The US Department of Justice has decided to appeal the June 12 court ruling allowing AT&T’s $85 billion acquisition of Time Warner, it announced late on Thursday.

In a brief Notice of Appeal filed on July 12, the DoJ notified the District Court that it intends to bring the case to the Court of Appeals against the ruling that will allow AT&T’s planned acquisition of Time Warner to go ahead with no restrictions.

The US government, which had until August 12 to ponder an appeal, took a month to decide it would lodge an objection to the mega-acquisition. US entertainment industry news site Deadline sourced a copy of the Notice, signed by Craig Conrath, who was leading the government’s legal team during the trial. It doesn’t elaborate on the grounds upon which the appeal would be lodged, but the decision to appeal seems to have caught AT&T by surprise.

“The Court’s decision could hardly have been more thorough, fact-based, and well-reasoned,” David McAtee, the operator’s General Counsel, said in a statement. “While the losing party in litigation always has the right to appeal if it wishes, we are surprised that the DOJ has chosen to do so under these circumstances.  We are ready to defend the Court’s decision at the D.C. Circuit Court of Appeals,” he blustered.

The ramifications of the potential appeal could hardly be greater — not only regarding the future of a newly-created WarnerMedia business, and whether it might need to decouple from its parent company, but also for the whole telecom and media industries. The boardrooms of Comcast and Disney will be full of sweaty palms (yuk!), as the outcome of the appeal will set a precedent for future vertical integration deals, including their bidding war for 21st Century Fox.

If the DoJ was to win the appeal, the US Solicitor General could bring the case to the Supreme Court, where the judges generally siding with President Trump are in the majority. Since the days when he was a candidate, Mr. Trump has been a vocal opponent to the merger, citing the danger of “too much concentration of power in the hands of too few.” However, such a decision would not be without a twist: Eriq Gardner, the Senior Editor at The Hollywood Report, discovered in a disclosure paper that John Roberts Jr, one of the Supreme Court Chief Justices, still holds Time Warner shares.

AT&T has been moving very fast after the June 12 ruling to integrate the two companies, from appointing executives to stamping its authorities over HBO, although it has decided to leave Turner Broadcasting, the owner of CNN among other assets, independent until February 2019. However, it has already broken at least one promise related to the deal: instead of making the service more affordable, it just raised the monthly bill for its DirecTV Now service by $5.