'Clouds Gathering' Over Sprint-T-Mobile Deal As Opposition Gets Louder
At the end of last year, most telecom analysts thought the proposed $26 billion merger between Sprint and T-Mobile was coasting towards an easy approval from the federal government.
But since then, opposition forces have surfaced, prominent Democrats are taking it on as a cause, and the deal’s approval chances now appear to be at 50-50. An analysis by Bloomberg called it "anybody's guess."
"There seems to be some clouds gathering over the deal," said Mike Dano, editorial director of 5G and mobile strategies for Light Reading, which covers the telecom industry. "The noise is growing."
That noise was at full pitch last week as T-Mobile CEO John Legere and Sprint executive chairman Marcelo Claure went before the United States House of Representatives' Energy and Commerce Committee. Critics from public interest groups, unions and rural wireless providers told the panel that contrary to what the companies have promised, prices will increase with lessened competition.
The hearing was mostly political theater, Dano said. But he noted that opposition began to grow louder after Democrats took control of the House during the mid-term elections. Then, last week, nine Democrats, several with presidential aspirations, wrote to regulators urging them to turn down the deal.
The senators wrote that a merger of the No. 3 (T-Mobile) and No. 4 (Sprint) providers would be "likely to raise prices for consumers, harm workers, stifle competition, exacerbate the digital divide, and undermine innovation."
"That's given a lot of momentum to the opposition," Dano said.
Last Wednesday before the House committee, Legere continued to defend his promise to not raise prices, which he put in a letter this month, saying he wasn't engaging in "trickery."
"(The letter) was an attempt to add another layer in addition to my business plan that says, if you are concerned whether there was any trickery, let me be clear: the rate plans will stay in place and customers that pay X today will not pay more," he said.
Phillip Berenbroick, a lawyer with Public Knowledge, a non-profit that is part of an opposition group called 4Competition Coalition, said the merger would create a duopoly and has many of the same harmful characteristics of the AT&T-T-Mobile merger. That proposal was pulled by AT&T in 2011 when it faced a difficult road with federal regulators during the Obama Administration.
But Claure said the U.S. already has a duopoly in the wireless market, with AT&T and Verizon controlling more than 93 percent of the market.
"It's impossible to compete," Claure said.
He painted a bleak picture of Sprint if the merger fails to go through, saying it won't be able to offer service to rural customers and will only build a limited 5G (next generation) network.
"Unfortunately, as you know, Sprint doesn't generate any cash flow," Claure said. "And if we gotta build this network on our own, we need to spend between $20 billion and $25 billion. We're going to have to go to the banks, we’re going to have to go to the bond markets."
A second hearing scheduled for last week before the House Judiciary Committee was indefinitely postponed, so the next step is uncertain. The proposed merger must be approved by both the Federal Communications Commission and the U.S. Justice Department and had been expected by spring or early summer.
KCUR's Peggy Lowe is a correspondent for Marketplace and does investigative projects with APM Reports. She’s on Twitter @peggyllowe.