Pai gobbles up Sprint and T-Mobile US merger

After months of headaches and sleepless nights, the tides of favour seem to be turning for Sprint and T-Mobile US as the FCC chief gives his blessing for the union.

254 days into the 180 days the FCC gives itself to approve mergers, FCC Chairman Ajit Pai has officially confirmed his position. It is still not quite 100% guaranteed for the two telcos, however with Pai’s recommendation, the future is looking very rosier.

“After one of the most exhaustive merger reviews in Commission history, the evidence conclusively demonstrates that this transaction will bring fast 5G wireless service to many more Americans and help close the digital divide in rural areas,” Pai said in a statement.

“Moreover, with the conditions included in this draft Order, the merger will promote robust competition in mobile broadband, put critical mid-band spectrum to use, and bring new competition to the fixed broadband market.”

Suggesting this was a protracted and painful process might be one of the biggest understatements of the year. However, it might have been necessary considering the significant impact a merger of this scale could potential have on competition, diversification and network deployment across the US.

Above all else, the US is a monstrous market with an incredibly small number of nationwide telcos. This does of course offer economy of scale to improve investment capabilities, though there is a risk of regional monopolies due to the sheer size and geographical variance across the country. Proposed mergers which would take the number of national telcos from four to three has been extinguished in the past, though this one has passed almost every test.

The greenlight from the FCC Chairman is an important step, adding momentum to positive news from the Department of Justice in the last few weeks. At the end of July, the DoJ’s antitrust division gave the thumbs up, assuming Sprint’s prepaid brand Boost is divested, and Pai has made the same demands.

This is one concession which many expected, but we have major issue with. Dish will acquire the Boost brand, allowing it to make use of its horde of valuable spectrum, satisfying the demands, though will this be enough to maintain the current levels of competition, the objective of both the FCC and DoJ? We do not believe so.

Firstly, instead of having four established telcos in the US, consumers will now have to choose from three telcos and a newbie with zero experience of effectively running a mobile business and network. Dish does not have the competence, experience, infrastructure, processes, billing systems or supply chain to run a mobile business, and it will take years to build these elements to the degree expected.

Secondly, Dish is now an MVNO. It will be able to make use of the T-Mobile network, but the FCC and DoJ has replaced a functional MNO with an MVNO and expects no-one to notice the difference. Both of these agencies expect Dish to have its own network up-and-running in a few years, but this is another ridiculous ambition.

As mentioned in the first point, this is a company which is not practiced in the dark arts of mobile. The three remaining traditional players took decades to rollout their own networks, and they are still not genuine nationwide telcos (there are still network gaps across the country). How is Dish expected to create a nationwide, 4G and 5G, network across a country of 9.8 million km², with an incredibly variety of different urban densities, geographical landscapes and economic societies.

If anyone thinks Dish is going to be a replacement which can maintain the current status quo, they are quite frankly fooling themselves.

What is worth noting is that this is not the end of the road for Sprint and T-Mobile. It might have secured the relevant regulatory approval, but now it will have to combat the various legal challenges.

Led by New York Attorney General Letitia James, a coalition of State Attorney Generals have filed a lawsuit to block the proposed merger. The lawyers are arguing the merger would harm competition, and it should be blocked to maintain the status quo. As it stands, with four separate MNOs challenging each other, prices and mobile experience is improving for the consumer; the lawyers are arguing that the situation is not broken, it is in fact improving, so why should the FCC and DoJ try to fix an imaginary problem?

Although the approval process from the DoJ and FCC might have been considered a significant problem, the telcos will not have to face legal heavyweights from more than a dozen States. Lawyers have a way of being very difficult when they want to be, so there might well be a few more twists and turns in this saga.