Business / Tech

In break with FCC, U.S. Justice Department leans against T-Mobile takeover of Sprint

Bloomberg

The Justice Department is leaning against approving T-Mobile U.S. Inc.’s proposed takeover of Sprint Corp., according to a source familiar with the review, even after the companies won the backing of the chairman of the Federal Communications Commission.

The remedies proposed by the wireless carriers Monday don’t go far enough to resolve the department’s concerns that the deal risks harming competition, said the source, who asked not to be named because the investigation is confidential.

Opposition to the deal by the Justice Department’s antitrust chief, Makan Delrahim, would mark a rare break with the FCC. The two agencies work side by side on merger reviews and typically emerge on the same page about whether to approve deals.

Earlier on Monday, FCC Chairman Ajit Pai said he would recommend approval of T-Mobile’s $26.5 billion deal for Sprint after the companies offered a package of concessions, including spinning off Sprint’s Boost pre-paid brand, to win regulators’ blessing.

The news whipsawed Sprint and T-Mobile shares. Sprint pared gains on the report about the Justice Department’s opposition, then began climbing from session lows when it was reported that T-Mobile’s outside counsel, Rob McDowell, said the Justice Department “will” approve the deal. T-Mobile also bounced back.

With Pai’s support, the deal’s fate rests with Delrahim. While the FCC considers whether a merger is in the public interest, the Justice Department’s considers a different standard: whether a deal hurts competition and would raise prices for consumers.

The Justice Department and the FCC declined to comment. Sprint and T-Mobile had no immediate comment.

McDowell later tweeted that he’s “optimistic about @TheJusticeDept & remaining states green lighting the deal bc conditions should allay their concerns & it’s ultimately good for #consumers.”

Attorneys general from more than a dozen states are also investigating the deal and have raised concerns about harm to consumers. The states have signaled they may sue to block the deal even if the Justice Department clears it.

Maryland Attorney General Brian Frosh said Monday on the sidelines of a conference in Washington that he had to learn more about the specifics of the companies’ proposed fixes but said he is “skeptical” they would address his objections to the consolidation the deal would entail.

“It’s hard to say that our concerns could be alleviated by that kind of tinkering,” Frosh said. “It means that consumers are going to suffer in terms of price, in terms of quality, in terms of opportunities.”

T-Mobile’s acquisition of Sprint would combine the No. 3 and No. 4 wireless carriers in the U.S., leaving just three national competitors. The tie-up has been widely criticized by consumer advocates and lawmakers for consolidating the market and risking harm to consumers.

The FCC and DOJ have never reached different conclusions on a merger, Paul Gallant, a Washington-based analyst with Cowen & Co., said in a note Monday before news emerged of the Justice Department’s dissatisfaction with the deal.

“Makan Delrahim has proven to be unpredictable, so we don’t assume anything regarding his ultimate decision,” Gallant wrote.

Delrahim shocked many antitrust experts when he sued in 2017 to block AT&T Inc.’s planned takeover of Time Warner Inc. That deal was expected to win antitrust approval because it combined companies in different parts of a supply chain rather than uniting direct competitors.

Those deals are typically approved with conditions on how companies operate. Delrahim, in a break with the past, demanded asset sales and later sued the companies to block the deal. He lost on appeal.

“I still think the White House’s strong support for beating China in 5G will lead DOJ to clear the deal,” Cowen & Co.’s Gallant said after news emerged that the Justice Department is leaning against the deal.