Sprint Corp. and T-Mobile US Inc. officials have convinced White House economic and national security policy makers to OK their proposed merger on the grounds that the new company will be a formidable competitor for foreign entities, including those in China, in the ongoing battle to build a fifth-generation wireless network, the FOX Business Network has learned.
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But a bigger test remains: Convincing officials at the Antitrust Division of the Department of Justice and the Federal Communications Commission that the deal passes muster, according to White House sources and sources close to both telecom companies.
Those decisions—which are necessary for the deal to proceed—won’t be made for at least another month or possibly longer, underscoring the complex and overlapping concerns over the $26 billion merger that the Trump administration has been grappling with for almost a year, according to sources.
The Trump administration has made the development of fifth-generation wireless networks, also known as 5G, both a national security and an economic objective. The development of such super-fast wireless networks are expected to be an economic boom adding potentially hundreds of billions of dollars to the U.S. gross domestic product.
Meanwhile, Chinese telecommunications companies like Huawei, are looking to develop their own 5G networks and have already been accused of stealing trade secrets from U.S. carriers. U.S. policy makers worry that China could infiltrate America’s 5G companies by selling them equipment that will be used for espionage.
China has denied it is looking to break into the 5G business for spying purposes, but sources tell FOX Business White House officials believe combining Sprint and T-Mobile will create a formidable adversary to prevent Chinese surveillance while the new company will better compete with the big U.S. big players in the telecom space, namely AT&T and Verizon.
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Despite Sprint and T-Mobile’s successful efforts lobbying those in the executive branch, there’s no guarantee the deal will receive approval from two key regulators that are necessary for the merger to close: The FCC and DOJ. With such a significant deal, both FCC Chairman Ajit Pai and DOJ Assistant Attorney Antitrust Division Makan Delrahim must be careful about interpreting and applying the law, according to people with direct knowledge of their thinking.
Both agencies are still probing the deal, with DOJ paying close attention to the Clayton Antitrust Act of 1914 and FCC adhering to the Telecommunications Act of 1996. People close to the approval process say deliberations could potentially take until June of this year.
A DOJ spokesman said the government’s Antitrust Division is still “looking at whether the efficiencies outweigh the competitive harm.” Since this is a so-called horizontal merger, a deal that combines two companies in the same industry, DOJ officials are paying close attention to whether the merger could raise prices for consumers by reducing competition. The spokesman declined further comment.
A FCC spokesman had no comment. Press officials for T-Mobile and Sprint had no comment.
Officials at T-Mobile and Sprint have cited government data in arguing the DOJ’s antitrust concerns are overblown because two of the largest telecom carriers, Verizon and AT&T, control more than two thirds of the wireless market, according to people with knowledge of the matter. Meanwhile, T-Mobile holds the third spot with 18 percent of the wireless market share while Sprint is a distant fourth with close to 13 percent, according both company earnings report.
Thus, with 93 percent of the cash flow of the entire wireless market going to Verizon and AT&T, merging the two smallest players in the same space would do little to change the wireless landscape from an antitrust standpoint, lobbyists for T-Mobile and Sprint have argued to government regulators.
FCC is often regarded as the more political of the two agencies, with greater flexibility to carry out the administration’s agenda in approving mergers as long as the deal meets the requirements in section 310(d) of the Communications Act of 1934 and serves “public interest, convenience and necessity.”
The DOJ’s Antitrust Division must make sure that the deal meets the requirements of the Clayton Act, which outlaws business practices that hurt consumers, becoming a higher threshold for the companies to meet.
As a result, lobbyists and government officials with direct knowledge of the matter believe the deal has a roughly 50/50 chance of receiving approval.
If the DOJ rejects the merger, it’s likely the FCC would also not grant approval, and because of that, Sprint and T-Mobile are reportedly pushing ahead with their own individual 5G operations.