(Bloomberg) -- The Justice Department approved T-Mobile US Inc.’s acquisition of Sprint Corp., a deal it rejected under the previous administration, clearing one of the biggest hurdles to a takeover that will reshape the wireless industry.
T-Mobile and Sprint agreed to sell multiple assets to Dish Network Corp. as a condition for approval, paving the way to creating a new wireless company, the Justice Department said in a statement Friday. The carriers have promised to deploy a 5G network that would cover 97% of the U.S. population within three years and 99% within six years.
“The remedies set up Dish as a disruptive force in wireless,” said Makan Delrahim, the head of the Justice Department’s antitrust division, during a briefing with reporters.
In addition to spectrum, Dish is buying Sprint’s prepaid businesses Boost and Virgin. T-Mobile also is required to provide Dish with access to its mobile network for seven years while Dish builds out its own 5G network, according to the statement.
Delrahim said Dish is paying $5 billion to $6 billion for the assets and that there are penalties if the company doesn’t follow through on its commitments.
Shares of the companies climbed to session highs on the news. T-Mobile rose as much as 6.6% to $85.22, while Sprint added 8.3% to $8.06. Dish was up as much as 3.5% to $40.54.
”Today is a whole different day,” said Sprint Executive Chairman Marcelo Claure on Bloomberg TV. “It gets us closer to the final milestone. We want to build the best 5G network that the U.S. will need to lead 5G.”
The Justice Department approval moves Sprint and T-Mobile a step closer to completing their $26.5 billion tie-up and gives the carriers a significant boost as they contend with a lawsuit by a group of states that say the deal should be blocked because it would harm consumers.
If the states decide to continue the litigation, they will have to convince a judge that the agreement with Dish to establish a new wireless carrier doesn’t go far enough to resolve competitive harm from the merger. That’s a tougher challenge than showing the merger alone is harmful.
The states wrote a New York judge late Thursday to complain about what they said is a lack of transparency around the planned Dish deal, which the states suspect may be arranged to “hobble” Dish as a competitor.
The combination of T-Mobile and Sprint, the No. 3 and No. 4 wireless carriers in the U.S., also has come under fire from lawmakers and consumer advocates who say it will lead to higher prices and less innovation in a market that is already concentrated. The deal leaves just two other national carriers: Verizon Communications Inc. and AT&T Inc.
Yet by acquiring Sprint’s spectrum, T-Mobile will have nearly twice the wireless capacity of any other carrier. That should lower prices for subscribers by cutting in half the company’s cost per gigabyte, a measure of how expensive it is to deliver service, according to Jonathan Chaplin, an analyst with New Street Research LLC.
The Dish agreement is aimed at allowing the merger while maintaining four national wireless carriers, a longstanding requirement of the Justice Department. To work, Dish, the No. 2 U.S. satellite-TV provider, will have to build a national network. That could be a steep challenge. The company owns billions of dollars worth of unused airwaves, but it has no experience selling phones or operating a mobile service.
T-Mobile Chief Executive Officer John Legere -- who remade T-Mobile into a maverick competitor by eliminating annual contracts and offering unlimited data plans -- disputes that prices will go up. He insists that by buying Sprint he will be able to better compete against industry leaders Verizon and AT&T, all to the benefit of U.S. consumers.
The Justice Department approval puts Sprint and T-Mobile within reach of completing a deal that they have flirted with for years. In 2014, top officials at the Justice Department and the FCC rebuffed an effort by the companies to combine. The carriers returned in 2018, hoping for a more favorable reception from the Trump administration.
In May, they won the backing of Federal Communications Commission Chairman Ajit Pai with the promise to deploy an advanced fifth-generation wireless network.
Pai said he will present a draft order “soon” that would follow the DOJ’s filings. He said the agreement “will advance U.S. leadership in 5G and protect competition.”
He said the the transaction has “the potential to help close the digital divide in rural America and maintain our nation’s leadership in 5G.”
Read More: FCC Chief Reaffirms Support for T-Mobile Deal and Sets Up Vote
Delrahim forced the companies to go further to remedy competition problems in the merger. That led to the Dish agreement, which is intended to restore competition in the market. Whether it works depends on whether Charlie Ergen, the billionaire chairman of Dish, can carry out plans to build a new competitor. If not, Delrahim is sure to face criticism for accepting a failed remedy.
Gaining a wireless business with some airwaves thrown in would get Ergen another step closer to his goal of building a state-of-the-art network that can send video and other content without the need for cable or a satellite antenna. Ergen has long been aware of the inevitable decline of the satellite-TV business and has spent billions of dollars in government auctions to amass wireless airwaves.
Dish is now committed to rolling out a nationwide 5G network that reaches 70% of the U.S. population by June 2023. If the company fails, it owes the government as much as $2.2 billion.
Ergen likened the endeavor to his start in the satellite-TV business in the ’90s.
“We’ve been here before,” he said in a statement. “When we entered pay-TV with the launch of our first satellite in 1995, we faced entrenched cable monopolies.”
But the company went on to shake up the industry, he said. “Dish encountered many skeptics who questioned our ability to succeed,” he said. “But customers loved the disruption we brought to the marketplace.”
(Updates with comment by Sprint’s Claure in seventh paragraph.)
--With assistance from Lucas Shaw, Susan Decker and Erik Larson.
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