(Bloomberg Opinion) -- The government body that long posed the biggest obstacle to the union of T-Mobile US Inc. and Sprint Corp. because of the deal’s glaring antitrust issues has now given its blessing. On Friday, the U.S. Department of Justice approved the controversial $59 billion merger, capping a rather unconventional regulatory review process with a decision that will utterly transform the U.S. wireless market.
The deal may alter how wireless-plan prices are set in the industry, where Verizon Communications Inc. and AT&T Inc. are currently the only other national carriers. As part of the flimsy concessions meant to offset the negative effects, T-Mobile agreed to sell Sprint’s Boost and Virgin pay-as-you-go wireless businesses and some airwaves to Dish Network Corp., a satellite-TV company. Makan Delrahim, the DOJ’s top antitrust enforcer, is seeking to synthetically create a new fourth competitor through Dish, which will have access to T-Mobile’s wireless network for seven years while it builds its own. But Dish is inexperienced in this business, so it has a long way to go and much work to do before it can disrupt the market the same way that competition between T-Mobile and Sprint has for the last few years.
In an earlier agreement with Ajit Pai, chair of the Federal Communications Commission, T-Mobile pledged to hold off on price increases, but only for three years, by which point it promises to cover 97% of the population with 5G service. Backing a deal that was once seen as off-limits, the federal government broadly has taken the stance that the merger is essential for U.S. companies to lead the world in launching faster 5G data networks, though it’s not entirely clear why.
There’s irony in the fact that amid all the chest-thumping about U.S. technological dominance, the biggest beneficiary of the DOJ’s decision is a billionaire from Japan named Masayoshi Son. His company, SoftBank Group Corp., controls the downtrodden Overland Park, Kansas-based Sprint, which has largely been a disappointing investment for Son. Sprint, strained by debt and a run-down brand, now gets to join a superior operator on healthier footing – and Son gets a piece of it. SoftBank is retaining 27% economic ownership of the combined entity, while T-Mobile’s German parent, Deutsche Telekom AG, will own 42%. Shares of their rivals, Verizon and AT&T, extended gains after the DOJ announcement.
It’s not a done deal yet. Attorneys general from 13 states and the District of Columbia have sued to block the merger; should they proceed, they may have a strong case. However, Delrahim is reportedly trying to negotiate with state officials.
Still, the DOJ appears to be contradicting itself. Just three days ago, Delrahim’s antitrust division announced a broad review of the U.S. technology giants, such as Facebook Inc. and Google, to look into whether they possess too much power and cause consumer harm. Backing a deal that similarly has the potential to hurt consumers is inconsistent with his concerns about tech overreach. The appearance of a double standard doesn’t help to suppress speculation that political forces may be at play.
Questions have been raised about White House interference, just as they were during last year’s trial over AT&T’s takeover of Time Warner, in which the DOJ failed in its effort to block the deal. While some 2020 Democratic presidential hopefuls have come out against the Sprint takeover, arguing it would hurt lower-income consumers and Americans in rural areas, President Donald Trump has signaled support by emphasizing the need to be globally competitive in 5G and facilitate such investments:
The FCC also became fiercely divided along party lines. Pai, a Republican, broke with tradition by voicing his support for the transaction in May, before his own agency colleagues and counterparts at the DOJ had the chance to complete their analyses. Commissioner Jessica Rosenworcel, a Democrat, expressed her displeasure with how this was handled, saying it “looks like some backroom dealing.”
The country’s 5G push isn’t based on fantasy or a ruse, but it’s not clear how enabling T-Mobile and Sprint to combine their 5G capabilities abates the antitrust issues. On the one hand, T-Mobile will gain Sprint’s desirable mid-band spectrum, which can carry data at fast speeds and still travel long distances and through buildings. That makes it practical for connecting rural areas, as the companies promise to help close the country’s digital divide. After all, there’s a connection between income inequality and a lack of affordable access to wireless connectivity, which has become part of our social fabric.
But while addressing that problem is certainly a mission to support, skepticism is warranted when any megamerger promises better service and better prices as a result. Just look at the airline industry: Consolidation has left the carriers with little incentive to compete on price or labor, improve the experience for customers or try to earn their trust (and in the case of wireless companies, part of that trust is with our personal data, and it’s been broken before).
As for the notion that Dish is going to maintain the competitive balance, if that were true there’d be little reason for T-Mobile to do the deal as it likely seeks to close the gap with its larger rivals and earn margins more on par with theirs. Dish hasn’t even proven a reliable narrator in its own story yet, given that Chairman Charlie Ergen’s wireless talk has mostly been just that. It will take time for Dish to become widely known as another option for wireless service, never mind the costly, time-consuming process of actually building a network.
T-Mobile and Sprint have been important competitive and innovative forces in the wireless market. We’ll know in due time whether regulators erred in not trying harder to preserve that.
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Tara Lachapelle is a Bloomberg Opinion columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.
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