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Influential Calif. regulator could weigh in last on Sprint/T-Mobile deal

Though the proposed merger of Sprint Corp. and T-Mobile US Inc. appears to have cleared all federal regulatory hurdles besides the U.S. Department of Justice, California's influential public utilities commission continues to be a potential obstacle for the deal.

After Hawaii's public utilities commission approved the deal on May 30, California's Public Utilities Commission remains the last state PUC yet to approve the merger. While the California PUC only has a say over what happens to the proposed merger in California, technology law experts note that the agency's decision could effectively determine the outcome of the deal nationwide.

"California may be significant enough that as a practical matter that would hold up the merger," Mark Lemley, director of the Stanford Program in Law, Science and Technology at Stanford University, said in an email.

Decision imminent

After the majority of the U.S. Federal Communications Commission came out in support of the deal on May 20, the only other federal approval the companies are waiting on is from the DOJ. Some reports have suggested that the DOJ is nearing a decision on the proposed deal, raising the possibility that the California PUC could vote on the matter soon after.

"I think it puts more pressure on California, without question," Rachelle Chong, a former FCC and California PUC commissioner, said in an interview.

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T-Mobile CEO John Legere recently said the company was "making progress" with the California PUC.

Source: Associated Press

Chong now works as a lawyer practicing in front of the PUC on a range of issues that include telecommunications and broadband. One of her clients is the California Emerging Technology Fund, a nonprofit that aims to close the digital divide. The organization recently reached an agreement with T-Mobile on "public benefits" for the deal that includes a commitment to ultimately provide 5G coverage for 99% of California households. Next-generation 5G wireless networks are set to offer download speeds many times faster than the current 4G LTE wireless networks.

The original schedule for the California PUC proceeding called for a proposed decision from the administrative law judge overseeing the case by the second quarter of 2019. In a February 2019 ruling on a procedural element of the case, the administrative law judge on the application, Karl Bemesderfer, said the anticipated date for a proposed decision remains unchanged, suggesting a proposed decision is likely to come down before the end of June.

However, Chong notes that with the additional time needed for comments and replies to the proposed decision, the first possible date the commission could vote on it is at its Aug. 1 commission meeting.

Notably, Sprint and T-Mobile previously extended the expected closing date of their proposed merger to July 29. Chong said they may have to extend it again.

Potential concessions

Chong said the California PUC has developed a pattern in the types of conditions it has asked for in recent high-profile telecommunications cases.

"Typically, they are quality of service, rates and service to remote and rural areas," she said.

Bemesderfer has been the judge in other high-profile telecom cases before the California PUC, such as Frontier Communications Corp.'s acquisition of landline assets from Verizon Communications Inc. and Charter Communications Inc.'s combination with Time Warner Cable Inc. and Bright House Networks LLC. In those cases, Chong noted that Bemesderfer approved the deals with specific conditions, such as improved service.

The commissioners at the California PUC will also have the opportunity to offer changes to the proposed decision from Bemesderfer and vote on any changes proposed. A majority of the five-member commission will need to vote to approve the judge's decision for it to go through.

On the company's earnings call on Apr. 25, T-Mobile CEO John Legere himself said the company was "making progress" with the California PUC.

Legere said that many of the issues brought up in California have also arisen with constituents across the country, pointing to concerns about network build-out, the benefits of 5G networks, the future of pricing and the impact on rural America. Ultimately, he maintained "all of the questions and all of the concerns are easily answered by a transaction like this that has so much pro-competitive and pro-consumer output."

FCC's influence

Chong said FCC Chairman Ajit Pai's own announcement that he believes the deal would be in the public interest could have some influence on the California PUC.

"While the PUC doesn't necessarily follow what the FCC does, they certainly would take into account whether they found the merger to be in the public interest," she said.

Lemley noted that the California PUC opposed the previously proposed merger of AT&T Inc. and T-Mobile "that later blew up," though the FCC had not officially moved to block it. The transaction at the time would have merged the second- and fourth-largest U.S. mobile carriers.

He thinks a merger of two smaller wireless providers, however, is "less problematic than the AT&T takeover would have been."