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Qualcomm craters on antitrust case; FCC chairman backs Sprint/T-Mobile merger

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Qualcomm craters on antitrust case; FCC chairman backs Sprint/T-Mobile merger

An antitrust ruling against Qualcomm Inc.'s patent-licensing business sent shares in the U.S. chipmaker into the red for the week ended May 24. Meanwhile, Sprint Corp. and T-Mobile US Inc. stock rose after a top U.S. regulator gave a thumbs up to the pending merger between the two wireless operators.

A federal district judge on May 21 said Qualcomm used its dominant market position to charge unreasonably high prices and hurt competitors in the wireless chip market. U.S. District Judge Lucy Koh, who sided with the U.S. Federal Trade Commission that had filed a complaint against Qualcomm in 2017, ordered the company to negotiate or renegotiate its license terms with customers, among other remedies.

Some analysts said the ruling could damage Qualcomm's innovation and ultimately impede the United States' standing in the global race to deploy next-generation 5G wireless networks.

"A ruling like this really hinders the ability of the mobile ecosystem to keep scaling and innovating, especially when you kind of shoot one of these big players in the foot," said Mario Morales, an analyst with research firm IDC, in an interview.

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By midday May 24, Qualcomm shares had lost 18.12% in value for the week and were trading at $66.73 apiece.

Shares in Sprint and T-Mobile, meanwhile, jumped after U.S. Federal Communications Commission Chairman Ajit Pai said May 20 that he is ready to recommend approving the pending merger between the two companies. Pai's comments came after the two companies submitted a series of commitments, including expansive 5G network build-out plans and divestiture of Sprint's prepaid Boost Mobile business.

Republican FCC Commissioner Brendan Carr has added his voice in support of the deal, while Commissioner Jessica Rosenworcel, a Democrat, said she still has doubts about the combination.

In order for the deal to close, however, it must be approved by both the FCC and the U.S. Department of Justice at the federal level, as well as by a number of states. And some telecommunications experts remain doubtful that the companies' commitments will go far enough to relieve the DOJ's market concentration concerns.

"It is relatively clear that divesting Boost doesn't come close to solving the HHI problem," MoffettNathanson analyst Craig Moffett wrote in a May 21 blog post. He referred to the Herfindahl–Hirschman Index, a commonly used measure of market concentration that the DOJ has historically relied on closely.

The DOJ is leaning toward rejecting the pending merger, as the concessions do not satisfy the department's antitrust considerations, Bloomberg News reported early in the week. However, a subsequent CNBC report on May 23 said Makan Delrahim, the head of the Justice Department's antitrust division, may choose to support the deal despite a staff recommendation to block it.

Around midday May 24, Sprint shares had gained 12.46% for the week, trading at $6.95 apiece. T-Mobile shares, meanwhile, were trading at $75.96 midday May 24, up 0.79% from their May 17 close.

In the media space, Lions Gate Entertainment Corp. tumbled this week after the company posted lower-than-expected earnings. The company's shares had skyrocketed last week amid reports of a recent offer by CBS Corp. to pay $5 billion for Starz / Starz Encore (US), which Lions Gate had acquired for $4.4 billion in 2016.

For its fiscal fourth quarter ended in March, Lions Gate on May 23 posted a net loss attributable to company shareholders of $155.2 million, or 72 cents a share. That compares to an S&P Global Market Intelligence consensus estimate calling for a loss of 4 cents.

Lions Gate's quarterly revenue also came in below analysts' expectations, at $913.7 million, compared to the S&P Global Market Intelligence consensus revenue estimate of $936.0 million.

Lions Gate CEO Jon Feltheimer on an earnings call did not address recent reports of the recent offer by CBS, but expressed optimism at the growth potential of Starz.

"Obviously, we don't comment on M&A," Feltheimer said. "And I would say simply what you heard on the call today is that we have a plan. We're super confident about it."

Lions Gate stock was trading down 8.33% for the week around midday May 24, at $14.30 a share. CBS was trading at $47.56, down 1.69% for the week.