T-Mobile, Sprint merger nearing completion after controversial and lengthy negotiations

Federal regulators have signaled to participants of the proposed $26 billion T-Mobile-Sprint merger that barring a last-minute snag, they are on the verge of giving the green light to the transaction after some of the most controversial and lengthy deal negotiations in recent years, FOX Business has learned.

But in deliberations that have swung wildly from nearly complete to nearly dissolving over the past three months, anything is possible. Participants could walk away at this late stage or a frustrated antitrust division of the Justice Department could sue the companies to prevent the merger from taking place, deal participants tell FOX Business.

As of this weekend, however, that doomsday scenario appears unlikely. The DOJ was informed last week of deal progress and a tentative structure that appears to pass regulatory muster, these people add.

If discussions continued on their current trajectory, regulators alerted the companies involved that they could make what’s known as a “settlement announcement” Wednesday or Thursday, or possibly sooner, these people say. Such an announcement would set merger terms that the DOJ could live with, including the divestiture of assets that would lead to the creation of a fourth wireless network.

Indeed one hint that the DOJ’s announcement is imminent came over the weekend: Antitrust chief Makan Delrahim was scheduled on Tuesday to testify before the Senate’s antitrust subcommittee but the hearing was canceled on Saturday in a move that some insiders are saying could signal the deal is coming together. As previously reported on Tuesday by FOX Business, optimism is growing that the DOJ’s approval was likely coming any day now as the parties began to nail down terms.

And it would be a long time coming. The possible DOJ nod follows a months-long regulatory review that has been described as the "War and Peace" of antitrust evaluations to ensure the creation of a combined T-Mobile and Sprint wouldn’t lead to higher wireless prices because it effectively eliminates a major carrier.

Expect Delrahim to take a significant victory lap in announcing the final terms since the merger has faced significant opposition from consumer groups and some state attorneys general. At Delrahim's direction, the DOJ is expected to make a splashy announcement on how the final deal will benefit consumers and have significant economic benefits for the nation, according to people working with the companies. 

A DOJ spokesman declined to comment. Press officials from T-Mobile and Sprint had no comment.

The lengthy, and at times torturous, negotiations that continued through the weekend involved some of the telecom industry's biggest egos including Charlie Ergen, the wily chief of satellite provider Dish Network.

The former professional blackjack and poker player known for using those skills to upend deal terms is now on the verge of creating the new wireless company to appease antitrust concerns. His counterpart, John Legere, the flamboyant chief of T-Mobile, would achieve his long-held goal of buying Sprint and creating a wireless powerhouse that can compete with industry leaders AT&T and Verizon.

The other pivotal player in the mix is Delrahim, the politically savvy head of the DOJ’s antitrust division who is said to be looking for a bigger role in the Trump administration or a political career in the future.

Delrahim must appease senior White House officials – who believe the merger is necessary for the U.S. industry to stay competitive in the wireless business, particularly in developing 5G technology – in addition to his own staff, who initially pushed to sue and block merger over concerns it would lead to high prices for consumers.

To thread this needle, Delrahim has invested significant time and his reputation on the idea that Ergen would come through as its savior after initially aligning against the merger. The plan is to have Ergen’s Dish scoop up billions of dollars in divested assets to create a fourth wireless carrier and appease his staff's antitrust concerns, deal participants tell FOX Business.

If Delrahim can pull it all off, he would go a long away to repairing his stature following the division’s devastating loss to block the AT&T-Time Warner merger.

But striking a deal with Ergen – a shrewd and sometimes volatile negotiator – is never easy. The talks have bogged down over several issues including fears at T-Mobile and Sprint that they were being forced to give up too much spectrum to Ergen who might sell it to major players like Comcast or Charter Communications, posing a bigger competitive threat than Dish.

A Dish spokeswoman had no comment.

As of press time, Ergen is said to have agreed to the broad outlines of a purchase of spectrum and other assets that Legere and Sprint Executive Chairman Marcelo Claure, could live with. But people close to Legere and Claure say they are still worried that the Dish chief will demand more concessions and upend the negotiations forcing the DOJ to sue.

"With Charlie, anything can happen," said one deal participant.

Announced in April 2018, the merger between T-Mobile, the nation’s third-largest wireless operator, and Sprint, the fourth-largest operator, was contentious from the onset. The proposed deal shrinks the number of major wireless carriers to three from four, automatically sparking an antitrust review by government agencies.

In May, lawyers for T-Mobile and Sprint convinced the GOP-controlled Federal Communications Commission that such a move wouldn't lead to higher wireless prices for consumers because Sprint was such a weak competitor compared to players like AT&T, Verizon and T-Mobile. By teaming up with T-Mobile, Sprint might be able to survive financially, allowing the combined company to compete on price with the others, the companies argued.

Officials in the Trump White House and the president himself were on board for another reason: The new company would emerge as a major player in the development of a superfast 5G wireless network, allowing the U.S. to compete against countries like China. The Trump administration believes U.S. competitiveness in 5G is both an economic and national security priority since the technology is expected to create millions of jobs and can be used for espionage purposes.

But the final word on any merger always comes from the DOJ's antitrust division, which could sue to block it. Delrahim is a Trump appointee, but the agency’s staff does not align itself with the free-market thinkers in the White House led by economic advisers Larry Kudlow and Treasury Secretary Steven Mnuchin.

Rather, it is largely comprised of career lawyers with a consumerist viewpoint. They blocked similar deals such as AT&T’s proposed merger with T-Mobile in 2011. Legere, in 2014, was back with another deal, this time to combine with Sprint. But that effort fizzled out before it could even be reviewed by the DOJ when the Obama FCC voted no on the combo.

The DOJ staff was prepared to send Legere back to square one again. Enter Delrahim, with a solution to make the White House happy and persuade career DOJ staffers on the merger’s merits: Create a new fourth carrier.

For Delrahim, the logical, if unconventional choice for the fourth carrier was Dish and Ergen, according to people familiar with his thinking. As previously reported, Ergen has been at odds with Delrahim’s colleagues at the FCC and its chief, Ajit Pai, because Dish sits idly on billions of dollars in wireless spectrum licenses that his company purchased in recent years.

Ergen’s stated intention was to transform Dish from a satellite carrier to a new company focused on 5G. But Pai and the FCC have slowly come to the conclusion that Ergen has no such designs and that his grand plan was simply to pocket billions of dollars in profits by selling Dish's spectrum or Dish itself to another player in the wireless business.

By late 2018 the FCC put Ergen on notice: Build out a network by 2020 or the government would take back the licenses, costing Dish billions of dollars.

Delrahim's gamble was that Ergen would look to avoid a collision with the FCC and scoop some divested assets and spectrum from T-Mobile and Sprint to create that fourth carrier. Ergen could get an extension on the timetable of his wireless build-out, Legere would get his deal and Delrahim would neutralize antitrust concerns including those laid out in a federal lawsuit brought by a group of Democratic attorneys general looking to quash the merger.

Ergen joined the deal talks in June, and his famous hardball negotiating style and deal-making abilities added an uneasy presence to the already tense negotiations. Ergen upended talks at least once with his need to finance the proposed asset purchases, sources said.

T-Mobile and Sprint executives soon began to worry that Ergen would use any government build-out extension to sell a spectrum-fattened Dish to another, more powerful player down the road, according to those sources. Dish is considered less of a formidable competitive threat to the new company given its balance sheet issues (it carries a lot of debt and not much scale) than telecom behemoths Comcast or Charter Communications.

As of now, it's unclear what, if any, guarantees Ergen has given on the re-sale of spectrum, and people close to the deal negotiations say that without a guarantee, the merger could still fall apart.

Meanwhile, Ergen’s intentions are also a concern for the FCC and Pai, who prior to Dish’s involvement was in support of the merger and had set only limited conditions for FCC approval. Those conditions included the combined T-Mobile and Sprint selling its prepaid wireless service Boost and agreeing not to raise prices for three years.

The FCC may now demand hard-and-fast guarantees from Ergen over his wireless intentions in order to grant the deal its final greenlight and Ergen his coveted extension, people with knowledge of the matter tell FOX Business.

Yet even with all those concerns and obstacles, people close to the merger say there's a lot to be gained for compromise on all sides, which is why the betting among deal participants is that the merger becomes a reality this week.

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For instance, Sprint and T-Mobile officials are said to be “desperate” to make the merger work because they believe the two companies are a natural fit and Sprint might not survive going alone, a person with knowledge of their thinking say. Ergen has a regulatory gun to his head with his unused spectrum, which could cost him billions unless he agrees to terms that make the merger work.

The White House and the FCC want another solid U.S.-based 5G outfit. Delrahim, meanwhile, is looking for his moment to shine as a power-player in the Trump administration – and to be viewed as worthy of elected office down the road.

"Everyone in Washington thinks Makan is moving on to a political career," said one deal insider who spoke on the condition of anonymity. "So expect him to make a big deal out of the settlement if and when this deal is approved."