Takeaways
- In light of FCC officials’ recent comments that they intend to conditionally approve the Sprint/T-Mobile merger, attention now turns to the DOJ. The latter agency, should it also grant conditional approval, is likely to demand different requirements of the companies than the FCC, according to several sources.
- While the FCC appears set to accept the companies’ commitments regarding prices for their phone plans, the DOJ may take issue with potential loopholes in these commitments, wherein the companies only address base rates and fail to address surcharges and prices for additional services.
- The DOJ may impose structural conditions to further address these concerns, according to an antitrust practitioner who has worked in past telecom deals and a person familiar with the matter.
The fate of the Sprint/T-Mobile merger now likely rests on structural remedies under discussion with the DOJ after the companies have faced renewed criticism of their proposed behavioral commitments.
To ease FCC approval, T-Mobile and Sprint in late May offered several commitments, including reaffirming their pricing pledge to “make available the same or better rate plans” for three years post-merger. Just days later, a group of six Democratic U.S. senators wrote a
letter to the FCC and DOJ in which they criticized the commitments as “filled with loopholes” and “lack[ing] meaningful enforcement mechanisms.”
DOJ discussions with Sprint and T-Mobile are now focused on structural remedies as additional measures to ensure against potential anticompetitive price increases. The remedies may also be aimed at creating ideal conditions for a fourth competitor to replace lost competition in pre- and post-paid markets.
According to a person familiar with the matter, the DOJ’s conditions will differ from those likely to be imposed by the FCC, if in fact the DOJ chooses to approve the transaction. The person familiar with the matter noted that, while the FCC plans to accept the companies’ behavioral commitments of pricing plans regarding the Boost Mobile divestiture and MVNO agreement, the DOJ is seeking additional structural remedies to ensure the companies’ compliance with their commitments.
One of the challenges for the merging companies is their history of contradictory statements. Just as Sprint has offered mixed guidance about its financial health, Sprint and T-Mobile have made conflicting statements about how pricing changes could affect consumers.
On the one hand, the merging companies have said their pricing commitment “not only ensures that prices cannot go up, but that 5G comes at no extra cost in contrast to surcharges imposed by Verizon and planned by AT&T.” However, T-Mobile and Sprint have also said that “retained legacy rate plans
may be adjusted to pass through cost increases in taxes, fees and surcharges as well as services from third party partners that are included in the rate plans, as these increased costs are not within the control of New T-Mobile” (emphasis added).
Equipment upgrades and network changes are just two of the ways New T-Mobile could increase prices without raising base rate plans, according to Yosef Getachew, media and democracy program director at Common Cause, which is opposing the transaction.
In an effort to help consumers understand their telephone bill, the FCC earlier this year released a seven-page
summary of various phone issues and costs. The various fees listed include access charges, universal services charges, 911 and local number portability charges, monthly calling plan charges, features charges, airtime charges, roaming charges and daily access fees.
“It’s a choose-your-own-adventure with pricing,” Getachew said. “These companies are creative when it comes to marketing and pricing.” Common Cause and other public interest groups have criticized behavioral conditions and said that even structural changes would not resolve the transaction’s threat to competition.
However, Cristina Caffara, head of the European competition team at Charles River Associates, noted that in past wireless mergers, the European Commission and other European antitrust authorities have accepted conditions similar to those under negotiation between Sprint/T-Mobile and the DOJ. “The Commission has very much shifted to the analysis” that the best way to address such concerns is to “effectively slice off a portion of your network, plus some spectrum” to facilitate the creation of a new competitor,” said Caffara, speaking on May 31 at New York University’s Global Antitrust Economics Conference. “These remedies have developed more towards almost a quasi-structural remedy.”
Throughout his tenure as head of the Antitrust Division, DOJ antitrust chief Makan Delrahim has made a point of prioritizing structural remedies over behavioral conditions to address antitrust concerns with transactions. Shortly after taking the helm at the Division, Delrahim stated in a
speech that “antitrust enforcers have struggled more and more with the challenges of crafting and enforcing effective behavioral relief.” Combined with various loopholes in the merging companies’ pricing pledge, Delrahim’s skepticism toward behavioral remedies is likely to drive the DOJ’s ultimate decision about whether Sprint/T-Mobile can make sufficient structural changes for the deal to get approved.
Speaking with Reorg M&A at the same conference last Friday, an attorney with experience working on telecom transactions said that the DOJ will likely seek to impose “any conditions necessary” to give the agency confidence that the companies will actually implement their commitments. Divergence with the FCC in terms of structural versus behavioral commitments would “make sense” and “align with the stated goals of Delrahim,” the attorney said.
Reorg M&A’s previous coverage of this transaction can be found
HERE.
--Ryan Lynch and Matt Tracy