Makan Delrahim, the U.S. Justice Department's antitrust chief, is trying to shape a deal combining T-Mobile US and Sprint that he can pitch as a win for consumers. Here's how he may do it.
If the $26.5 billion deal is approved, it's likely to include conditions that give satellite TV provider Dish Network Corp. enough airwaves, prepaid customers and network access to emerge as a new national wireless competitor.
That would allow T-Mobile and financially struggling Sprint to merge and create a stronger No. 3 rival to AT&T and Verizon Communications. Dish's role would satisfy the government's longstanding demand that there be four national mobile-service companies remaining.
"The right deal could be a genuine win for consumers, and if Delrahim structures it right, the facts and history will stand by him," said Jonathan Chaplin, an analyst with New Street Research.
The Justice Department is nearing a final decision. While the broad outline of an accord has been established, key issues are still being debated -- including possible limits on Dish's ambitions as a wireless carrier. The company owns billions of dollars in unused airwaves that could be tapped to create an even more formidable competitor if it's free to obtain sufficient outside investment to build its own network, according to people familiar with the matter.
Under that broad outline, Sprint's airwaves would land in more financially stable hands. The No. 4 U.S. carrier has the most mobile-phone spectrum in the U.S. but has limited ability to build a network given its years of losses and financial constraints. Combining with No. 3 T-Mobile would solve those problems.
Even if Delrahim gives his blessing, he'll still have to convince opponents that consumers won't see higher prices and fewer choices. One point he'll likely to highlight is that the deal provides a path to putting Dish's trove of airwaves to work. The department declined to comment.
Skeptics point out that the track record for competitors created by divestitures has been dismal. French communications firm Iliad became Italy's fourth carrier last year after buying assets divested by two larger rivals that merged. Iliad had an initial surge in subscriber growth, followed by a slowdown across the sector.
"The premise that this deal will be good for everyone may be a little overly optimistic," said Phil Berenbroick of Public Knowledge, a consumer advocacy group in Washington. "It's obvious how harmful they think the deal is if they have to create a remedy as extravagant as this."
The shift to wireless will be a challenge for Dish, which is better known as the second-largest U.S. satellite TV provider. Dish has no experience selling phones or operating a mobile service. As part of the deal taking shape, the company would take over fewer than 9 million prepaid customers from Sprint to get its wireless business started. But that's a tiny runway to competing against incumbent carriers with 10 times more subscribers.
The future looks better for T-Mobile. With Sprint's spectrum, it will have nearly twice the wireless capacity of any other carrier. The company's cost per gigabyte, a measure of how expensive it is to deliver service, will be cut in half, Chaplin said.
"If that isn't a recipe for lower prices and share gains, I don't know what is," he said.
The merger has already won a nod from the chairman of the Federal Communications Commission, provided the combined company divests its Boost prepaid business, freezes prices and deploys a 5G network that would cover 99% of the U.S. population within six years.
If the Justice Department approves, T-Mobile and Sprint would gain an important ally as they fight a lawsuit challenging the merger brought in June by 13 states and the District of Columbia. The states argue the tie-up will harm competition and lead to higher prices.
"A Dish deal materially increases the odds of merger completion," says Kevin Roe at Roe Equity Research. Turning Dish into a legitimate fourth mobile carrier would "essentially gut" the states' case against the merger, he said.
To gauge how competitive the wireless industry would be, just wait for the telling moment when and if the Justice Department announces its now-expected approval, Chaplin said.
"Watch what happens to the stock price of AT&T and Verizon on the day the deal is announced," he said. "That will be the best litmus test of whether the deal is good for consumers, or not. If their stock prices fall, it is probably a good deal for consumers."
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