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FCC Chief Gives Nod on T-Mobile Deal, Turning Focus to Antitrust

Todd Shields and Scott Moritz
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FCC Chief Gives Nod on T-Mobile Deal, Turning Focus to Antitrust

(Bloomberg) -- T-Mobile US Inc. and Sprint Corp. jumped as Federal Communications Commission Chairman Ajit Pai said he’ll recommend his agency approve the companies’ $26.5 billion merger, turning attention to whether the deal also will win a needed clearance from antitrust regulators.

Approval from the Justice Department antitrust division “seems likely” since it never has diverged from the FCC on a merger, said Paul Gallant, a Washington-based analyst for Cowen & Co. It’s now “almost assured” the deal will win FCC approval, Gallant said in a note.

The deal announced last year to combine the third- and fourth-largest U.S. wireless service providers needs approval from both authorities to succeed. The companies told the FCC they would sell Sprint’s Boost prepaid brand, build an advanced 5G network over three years, and pledge not to raise prices while the network is being constructed.

Sprint shares surged 24% to $7.66 after rising as much as 28% while T-Mobile rose 6% to $79.67 at 11:48 a.m.

“Two of the FCC’s top priorities are closing the digital divide in rural America and advancing United States leadership in 5G, the next generation of wireless connectivity,” Pai said in a statement Monday. “The commitments made today by T-Mobile and Sprint would substantially advance each of these critical objectives.”

The deal needs votes from at least three commissioners on the five-member FCC, where Pai leads the Republican majority. He said he would prepare an order “in coming weeks.”

Republican Commissioner Brendan Carr offered support, saying “Americans across the country will see more competition and an accelerated buildout of fast, 5G services” in an emailed statement. Republican Commissioner Michael O’Rielly didn’t immediately issue a statement.

Jessica Rosenworcel, the agency’s senior Democrat, in a tweet said she has “serious doubts” about further consolidation in the wireless industry.

The deal stoked concerns of reduced competition in the wireless industry because the number of major players would fall from four to three.

The Justice Department’s antitrust division, which is also examining the deal, hasn’t indicated whether the concessions will be enough to pass muster. The department declined to comment. State attorneys general are also investigating.

Selling off part of the prepaid business -- where wireless customers pay as they go rather than taking out subscriptions -- might help soothe concerns raised by the state attorneys general. They fear that a consolidated, three-carrier market would harm low-income customers by curbing choices and raising prices. People familiar with the matter told Bloomberg News last week that the companies were considering the separation and potential sale of the prepaid business.

Under the newly agreed plan, the companies would spin off Sprint’s Boost brand while keeping their Virgin Mobile and T-Mobile’s Metro labels. The three together make up the largest segment of the U.S. pay-as-you-go market, with about 42% share. These services are popular among people with little or no access to credit.

FCC staff had “frank discussions” with the companies, which listened to agency concerns, one senior official said in a conference call with reporters. The official emphasized the potential to spread fast 5G networks, and price guarantees offered by the providers.

The senior FCC official declined to discuss the status of the deal before antitrust regulators at the Justice Department.

“These concessions and Pai’s announcement is based on a lot of behind the scenes work to get this deal done,” Kevin Roe, an analyst with Roe Equity Research LLC, said in an telephone interview. “The FCC Chairman wouldn’t stick his neck out if he wasn’t confident that his antitrust counterpart wasn’t onboard.”

T-Mobile Chief Executive John Legere in a tweet said Pai’s support was “a very important step” and that “I couldn’t be more optimistic.”

Larger rivals Verizon Communications Inc. and AT&T Inc. also rose on the indication that further industry consolidation might be well received. Verizon was up as much as 4.2%, and AT&T gained as much as 4%.

Going the other way were makers of cellphone towers, who face the loss of a big customer. American Tower Corp. fell as much as 1.9%, Crown Castle International Corp. lost as much as 3.2% and SBA Communications Corp. was down as much as 4.5%.

Deutsche Telekom AG shares rose as much as 1.2% in Frankfurt on Monday. Shares of SoftBank Group Corp., which owns Sprint, rose 0.4% as of 4:20 p.m. in Tokyo.

Among the commitments the company made is to build a 5G network that covers 97% of the U.S. population within three years, including 85% of rural areas, according to a letter the companies sent to the FCC. Within six years, the network is to cover 99% of the nation and at least 90% of rural areas. The company also said it will offer in-home broadband service “priced significantly below incumbent provider prices.”

If regulators find that the company missed its commitments, the companies agreed to pay penalties ranging from $10 million to $250 million, according to the filing.

A Boost Mobile founder, Peter Adderton, whose business was acquired by Sprint when it merged with Nextel Communications in 2006, has urged regulators to have the newly merged company sell one of the brands to preserve competition. He said last year he would like to bid for the divested brand.

The companies have said their wireless in-home broadband service will better serve rural customers. They will deliver 100+ Mbps speeds for wireless broadband to 90% of the population and in-home service to over half the country’s households by 2024.

Legere last month disputed a report that regulators told the companies that the deal, as structured, would be opposed. Since then, Legere and Sprint Chairman Marcelo Claure have visited officials in Washington pitching the deal. They argue the new company could provide competition to cable companies with in-home broadband, as well as beat Verizon and AT&T in developing a nationwide 5G network.

For T-Mobile owner Deutsche Telekom, the takeover would add scale to the German carrier’s fastest-growing unit, giving it more clout to challenge AT&T and Verizon. Deutsche Telekom CEO Tim Hoettges has argued that T-Mobile would still be well positioned if the deal is rejected.

“We view this as a significant positive for the prospects of the deal,” Wells Fargo analyst Jennifer Fritzsche wrote in a research note Monday. “While the state attorneys generals could still object to the deal, the divestiture of Boost Mobile should help with any AG objection, as the concentration of New T-Mobile’s combined prepaid business was a major hot-button issue for them,” Fritzsche wrote.

(Updates with Justice Department approval prospects in second paragraph.)

--With assistance from Nabila Ahmed and Liana Baker.

To contact the reporters on this story: Todd Shields in Washington at tshields3@bloomberg.net;Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, ;Jon Morgan at jmorgan97@bloomberg.net, Sara Forden, Elizabeth Wasserman

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