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States still a hurdle in Sprint/T-Mobile's clearing regulatory path to close

It took T-Mobile US Inc. and Sprint Corp. more than a year to win federal approval for their pending merger, but the battle at the state level continues.

More than a dozen state attorneys general, led by New York and California, said they have concerns about the tie-up of the No. 3 and No. 4 U.S. wireless operators, even after concessions sought by the U.S. Department of Justice in its conditional approval. Analysts said a lawsuit filed by the state regulators could delay the wireless transaction's closing by at least several more months.

"We're very likely at least six months away from knowing whether this deal will or won't happen," wrote MoffettNathanson cable and telecom analyst Craig Moffett in a research report.

The states' lawsuit, filed in New York federal court in June, alleged that the merger of two of the four largest national mobile network operators would reduce competition and drive up prices for wireless services. It pointed to prepaid wireless consumers in particular as likely to be harmed, noting that the combined prepaid businesses of T-Mobile and Sprint would dominate that market segment.

T-Mobile President and COO Mike Sievert said during a July 26 conference call that the company does not plan to close its deal with Sprint until the court case is resolved.

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Although Makan Delrahim, head of the Justice Department's antitrust division, said the states' lawsuit had no impact on the terms of the DOJ's settlement, several of the states' concerns are addressed in the DOJ's deal conditions, including with regard to the prepaid market. As part of the DOJ settlement, Sprint and T-Mobile agreed to divest Sprint's prepaid business — including the Boost Mobile, Virgin Mobile and Sprint prepaid brands — to DISH Network Corp. The satellite operator will also acquire low-band spectrum and get access to at least 20,000 cell sites and hundreds of retail locations as part of the divestitures.

Still, New York Attorney General Letitia James said the DOJ settlement does not go far enough.

"We have serious concerns that cobbling together this new fourth mobile player, with the government picking winners and losers, will not address the merger's harm to consumers, workers, and innovation," James said in a July 26 statement.

She noted DISH has never owned any kind of mobile wireless business and has no experience building or operating a nationwide mobile wireless network.

Speaking of the deal's remaining opposition, T-Mobile CEO John Legere said July 26 that he is "very confident" that T-Mobile, Sprint and the Justice Department have either already answered state regulators' primary concerns about the deal or else can answer them moving forward.

"That will be job No. 1," Legere said during a conference call.

Analysts and media experts were divided on whether Legere was right.

Cable and telecom analyst Moffett said he is "skeptical" about whether the deal will survive the states' lawsuit.

But Tom Struble — technology policy manager at the R Street Institute, a libertarian policy think tank — noted that courts tend to defer to the expert agency in cases where the relevant laws or statutes are unclear, and in this case both the federal antitrust and telecom expert agencies have signed off on the merger.

"I think it will be a very tough sell for those [state] AGs to convince any judge or panel of judges that they [the DOJ and the U.S. Federal Communications Commission] were wrong," Struble said in an interview.

Alex Besen, founder and CEO of the mobile data consulting firm The Besen Group LLC, is similarly bullish on the deal's prospects.

"If you get the blessing from the DOJ and the FCC, I think all the others are going to follow," he said. Besen added that negotiations with various attorneys general over state-specific concessions could delay the deal closing by a couple of months.

"At the end of the day, they will all likely approve the merger," Besen said.

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