Department of Justice clears deal following concessions to make Dish Networks a wireless provider
As expected, the U.S. Department of Justice finally approved the T-Mobile/Sprint merger that will create the country’s second-largest wireless carrier following concessions to make Dish Networks the fourth player in the market. While the approval clears a major hurdle, a substantial obstacle – a lawsuit by several states – remains in the way.
The Lowdown: Earlier this week, T-Mobile and Sprint reached a deal with Dish Networks, which will pay approximately $5 billion for Sprint’s Boost Mobile pre-pay service and wireless spectrum assets. The divestiture deal is critical, as federal regulators want a fourth carrier to maintain competitive pressure and keep wireless service prices low. The side deal with Dish satisfied Justice Department reviewers that were critical of the market impact of the deal. The Federal Communications Commission already approved the merger in May.
The Details: Dish Networks, which already owns unused spectrum, will take over at least 20,000 cell sites and hundreds of Sprint and T-Mobile stores to jump-start its business. Additionally, Dish will get access to T-Mobile’s network for seven years. The $26.5 billion merger still faces a legal challenge by the District of Columbia and 14 states’ attorneys general, which seek to block the deal. The states say the concessions are not enough and will lead to a $4.5 billion increase in costs to consumers.
The Impact: The two companies say they need to merge to remain competitive, particularly in the race to build 5G networks, against market leaders Verizon and AT&T. If the two companies can get around the states’ lawsuit, T-Mobile will become the second-largest wireless carrier with substantial consumer and channel presence. The Justice Department and federal regulators have urged the states to drop their lawsuit based on the concessions made.
Background: T-Mobile and Sprint announced their intention to merge in 2017. It was the second time they attempted to merge the two companies since 2013. Competition has long been the impediment to the deal, as consumer advocates believe subscribers will pay the price for the companies’ gains in market power and operational efficiency. The companies had been working toward a July 29 deadline to come to an agreement. Holding up the divestiture portion was T-Mobile’s parent company, Deutsche Telekom, which wanted restrictions on outside investments in Dish to prevent a larger company – such as Amazon, Google, or Comcast – from swooping up the wireless assets and undermining the gains from the merger.
The Buzz: “With this merger and accompanying divestiture, we are expanding output significantly by ensuring that large amounts of currently unused or underused spectrum are made available to American consumers in the form of high quality 5G networks,” said Makan Delrahim, assistant attorney general of the Justice Department’s Antitrust Division.
“You can see by the level of concessions that we have made in terms of giving Dish access to the new network…disposing our 800 MHz spectrum, giving them access to some of our stores, some of our towers, buying our incredible brands, Boost and Virgin,” said Sprint chairman Marcelo Claure. “I think Dish will be set to be a viable competitor.”
“We have serious concerns that cobbling together this new fourth mobile player, with the government picking winners and losers, will not address the merger’s harm to consumers, workers, and innovation,” said New York attorney general Letitia James.
“Dish will start with none of the lucrative postpaid customers, no brand name, and no retail network,” said Georgetown University Law Center professor Andrew Jay Schwartzman. “Even if Dish successfully builds out its own network, that could not happen for several years, during which time the three big wireless companies will be able to lock in their customers and introduce their 5G technologies.”