trending Market Intelligence /marketintelligence/en/news-insights/trending/n9sGvRuKJ1R44a-PDlH39Q2 content esgSubNav
In This List

Analysis: Sprint/T-Mobile commitments may not go far enough for DOJ


What is Extended Detection and Response (XDR)?


Insight Weekly: Bank mergers of equals return; energy tops S&P 500; green bond sales to rise


Next in Tech | Episode 132: Are AI datacenters a thing?


Next in Tech | Episode 131: Mixed up M&A markets

Analysis: Sprint/T-Mobile commitments may not go far enough for DOJ

The U.S. Department of Justice's decision on whether or not to approve the proposed merger between Sprint Corp. and T-Mobile US Inc. is far from certain, hinging on whether recent commitments from the two companies go far enough to relieve market concentration concerns, telecommunications experts say.

On May 20, U.S. Federal Communications Commission Chairman Ajit Pai announced support for the proposed deal after receiving a set of pledges from the two companies, including expansive 5G network build-out plans and a commitment to divest the prepaid Boost Mobile business through a market-based process.

While some analysts see the FCC's move as a sign the deal is heading for a successful close, others note that the transaction must also receive approval from the DOJ and a number of states.

One central question that may determine the deal's future is whether T-Mobile and Sprint's latest commitments qualify as structural or behavioral remedies. Whereas structural remedies typically involve a tangible change to an organization such as a divestiture, behavioral remedies rely on stipulations that regulate a company's future conduct. Makan Delrahim, head of DOJ's antitrust division, has consistently spoken out against behavioral remedies, arguing that they impose government oversight on what should be a free market.

Phillip Berenbroick, senior policy counsel at public interest group Public Knowledge, says that commitments such as network deployment targets appear to be behavioral remedies.

"They force the government essentially to really step in and take a regulatory role and to have oversight — and then to essentially litigate these potential opt-outs that Sprint and T-Mobile set aside for themselves," Berenbroick said in an interview. "Those are exactly the types of conditions that Makan Delrahim has talked about for the last two years as being far outside the scope of the Department of Justice as an enforcement agency."

However, Tom Struble, technology policy manager at the R Street Institute, a libertarian policy think tank, believes that some of the commitments will be viewed as structural changes. Specifically, he pointed to the proposed divestiture of Boost Mobile and T-Mobile's pledge to offer the Boost buyer terms for a six-year wholesale mobile virtual network operator agreement.

"I think the Boost divestiture, given that it would be sold probably to an existing MVNO, or potentially a new entrant with deep pockets, would be a way to increase competition in the market," Struble said in an interview.

Struble noted that while the U.S. wireless market could soon be moving from four nationwide competitors to three — Verizon Communications Inc., AT&T Inc. and the new T-Mobile — it will likely soon expand to five or six competitors because of MVNOs or "other sorts of new entrants in the mobile wireless ecosystem that are right around the corner, or already getting their networks up and running," Struble said.

"We think even losing Sprint today, the market [will] remain very competitive going forward, because it's not going to be just those three companies competing with each other. It's actually going to be these new cable guys and tech companies, and maybe the satellite companies as well ... I think that is what structurally would be appealing to Delrahim," added Struble.

New Street Research analyst Jonathan Chaplin in a May 20 report also expressed optimism about the deal's chances for approval, increasing his deal approval odds to 80/20 from 50/50.

But other analysts remain skeptical, pointing to the DOJ's historical reliance on Herfindahl–Hirschman Index scores, a commonly accepted measure of market concentration.

Kagan analyst John Fletcher found in 2018 that if Sprint and T-Mobile combine, the index score for the U.S. wireless market would be well into the "highly concentrated" HHI range. Merger guidelines from DOJ say mergers that increase the index score sharply will automatically be presumed likely to hamper competition.

In a May 21 research blog, Craig Moffett of MoffettNathanson research found that the merger would move market concentration into the highly concentrated range "by any measure."

"It is relatively clear that divesting Boost doesn't come close to solving the HHI problem," added Moffett in his blog. "That is presumably part of the reason DOJ staff reportedly remains opposed to the transaction."

The HHI issue is also a reason why state attorneys general have a lower-than-usual legal hurdle to file to block the transaction than they typically would, Moffett wrote.

Struble notes, however, that HHI scores do not always tell the full picture of competition.

"Just watching HHIs, they have continued to go up and up as the market has gotten more concentrated, but it doesn't necessarily mean it's gotten less competitive, because, if you try and look at competition, you care mostly about innovation, and quality and prices," Struble said.