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After security nod, T-Mobile/Sprint deal fight moves to antitrust, state reviews

T-Mobile US Inc. and Sprint Corp. are heading into the new year with some positive momentum behind their pending merger, but opponents of the deal are not giving up the fight.

Removing one major hurdle to the merger's completion, both the Committee on Foreign Investment in the U.S., or CFIUS, an interagency government body that examines transactions where a foreign owner seeks to take control of a U.S. business, and Team Telecom, a smaller interagency group that specifically reviews foreign investments in U.S. communications assets, recently approved the deal. While some industry analysts believe that the national security approvals signal the merger is on its way to a successful close, opponents of the deal, including a new coalition that formed this month, say the fight is far from over.

Ahead of the decisions from CFIUS and Team Telecom, many had questioned whether the deal would pass security clearances. The U.S. government had expressed concern over the use of equipment from China's Huawei Technologies Co. Ltd. by the international parents of Sprint and T-Mobile, Japan's SoftBank Group Corp. and Germany's Deutsche Telekom AG, respectively. In November, U.S. officials called on foreign ally government counterparts and telecom executives to stop using Huawei equipment, citing national security concerns and potential cyberattacks.

Adam Isles, a principal at global security advisory firm The Chertoff Group, said CFIUS reviews have increased in prominence in recent years, especially since some high-profile combinations such as Broadcom Inc.'s attempted takeover of QUALCOMM Inc. earlier this year were rejected.

"The process for undertaking a national security review has been around for a while. I think what's probably newer is we've had an increase in Chinese investment and also the risk tolerance of the U.S. has declined," Isles said in an interview.

To win the national security approvals, SoftBank and Deutsche Telekom agreed to review their procurement strategies to potentially curb their reliance on Huawei. Deutsche Telekom, in particular, has historically been one of Huawei's biggest European partners.

"These approvals assure the strong partnership both companies have with the U.S. government will continue with the New T-Mobile," John Legere, CEO of T-Mobile, said in a news release.

SNL Image
Sprint Chairman Marcelo Claure and T-Mobile US CEO John Legere

Source: T-Mobile US Inc.

Recon Analytics analyst Roger Entner, whose research focuses on the mobile experience, was also bullish following the national security approvals.

While noting that the deal still must gain the U.S. Department of Justice's antitrust approval, an important next step, Entner said he saw the CFIUS and Team Telecom approvals as positive indicators for the transaction's ultimate success, especially considering the DOJ's seat on CFIUS and Team Telecom.

"Everybody is giving thumbs ups," Entner said in an interview, adding, "Santa has been good to Mr. Legere."

Still, the DOJ process is separate from the national security clearances, and several merger watchers said the security approvals will not have any bearing on the DOJ's decision.

Isles, who has held positions at both the Department of Homeland Security and the DOJ, said that in the past, the DOJ's antitrust division held the department's seat on CFIUS. But now, that seat is held by the department's national security division.

Phillip Berenbroick, senior policy counsel at public interest group Public Knowledge, noted that the merger of two of the top four U.S. wireless carriers was rejected by U.S. regulators during the Obama administration. Public Knowledge is part of the 4Competition Coalition, a newly formed alliance of concerned companies, consumer organizations, labor unions and industry associations that are working to block the T-Mobile/Sprint deal.

"This is merger that we've essentially seen before," Berenbroick said, describing the combination of T-Mobile and Sprint as a "straight-up horizontal merger between the No. 3 and No. 4 player in a four-firm market."

He compared it to AT&T Inc.'s blocked attempt to buy T-Mobile in 2011, which would have combined what were, at the time, the No. 2 and No. 4 players in the U.S. wireless markets.

"The DOJ and the FCC saw this movie in 2011 and they rejected it. And that's frankly where the law is, the public policy is," he said.

In terms of timing, as of Dec. 21, the FCC's 180-day merger review clock is on day 72. In addition to federal reviews, the deal also is awaiting approvals from various state regulators.

"I think what's flying under the radar is the hard look that's occurring at the New York State Public Service Commission and the California Public Utilities Commission and various state attorney generals across the country," Berenbroick said.

T-Mobile has said it expects the deal to close in the first half of 2019.