Sprint/T-Mobile Merger Gets FCC Chairman's Approval, Albeit With Conditions

The Chairman of the FCC said he would approve the proposed merger of Sprint and T-Mobile if the companies agreed to sell off Sprint's Boost prepaid business, as well as meet certain network-buildout conditions.

The news puts the proposed merger of the nation's third- and fourth-largest wireless network operators one major step further toward completion, although the transaction still needs approval from the full, five-member FCC commission and the Department of Justice. Already Democratic FCC Commissioner Jessica Rosenworcel tweeted that she has "serious doubts" whether the merger of Sprint and T-Mobile would be in the public interest, though Republican Commissioner Brendan Carr said he supports Pai's proposal.

If Sprint and T-Mobile are allowed to merge, they would still sit behind AT&T and Verizon in terms of customer numbers, but would command extensive spectrum holdings for 5G across 600MHz and 2.5GHz spectrum.

Wall Street investors seemed elated with the news, sending Sprint's stock up 25% and T-Mobile's stock up around 5%. Interestingly, stock for AT&T and Verizon also rose slightly, while stocks for cable companies like Charter and Comcast fell.

"Two of the FCC's top priorities are closing the digital divide in rural America and advancing United States leadership in 5G, the next generation of wireless connectivity. The commitments made today by T-Mobile and Sprint would substantially advance each of these critical objectives," said FCC Chairman Ajit Pai in a statement announcing his support for the transaction. In terms of conditions, Pai said the companies have committed to deploying a 5G network that would cover 97% of the US population within three years of the closing of the merger, and 99% of Americans within six years. Pai said the network would also cover 85% of rural Americans within three years and 90% covered within six years. Those coverage metrics are broader and faster than the companies had previously promised.

FCC officials also said the combined company -- currently called New T-Mobile -- will pay for an independent, third-party testing firm to conduct drive tests of its network to ensure the operator is meeting its network buildout requirements.

Pai also pointed to the fixed wireless plans that T-Mobile and Sprint have extensively detailed as part of his rationale to approve the merger. The combined company said it will deploy in-home broadband internet services of at least 25 Mbit/s download speeds to 9.6 million households, of which at least 2.6 million will be rural households, within three years of the transaction closing. Within six years of closing, those numbers will increase to 28 million households, of which 5.6 million will be rural. With their in-home, fixed wireless broadband play, the combined Sprint and T-Mobile will directly challenge many of the nation's wired internet service providers like AT&T, Charter and Comcast.

But it's the sale of Sprint's Boost prepaid business that's perhaps the most noteworthy condition. "In addition to their prior commitment not to raise prices for three years, T-Mobile and Sprint have decided to divest Boost Mobile. This sale is designed to address potential competitive issues that have been identified in the prepaid wireless segment," Pai said.

The companies promised that whoever buys Boost will get a sweetheart MVNO deal to the New T-Mobile network: "New T-Mobile will offer the Boost buyer terms for a six-year wholesale MVNO agreement that will include wholesale rates that will meaningfully improve upon the commercial terms reflected in the most favorable of T- three largest MVNO agreements. The wholesale network arrangement will also ensure that New T-Mobile and New Boost retain strong incentives to compete against each other for customers," Sprint and T-Mobile wrote in an FCC filing.

Already Boost founder Peter Adderton and America Movil's US MVNO TracFone have expressed interest in purchasing any prepaid assets divested by Sprint and T-Mobile. Indeed, Adderton took to Twitter to cheer the news today.

Sprint and T-Mobile said they will identify a buyer of Boost and submit the negotiated MVNO agreement to the FCC within 120 days of closing the merger. Sprint currently operates the Boost and Virgin Mobile prepaid brands and counts around 8.8 million prepaid customers, while T-Mobile operates the Metro by T-Mobile prepaid brand and counts roughly 18 million customers.

In other conditions on the merger, Sprint and T-Mobile agreed to retain Sprint's existing MVNO agreement with cable company Altice, and added that "New T-Mobile commits to engage in good faith negotiations to expand the existing Sprint/Altice agreement to the New T-Mobile 5G network."

Although the Department of Justice has so far remained silent on the topic of the merger of Sprint and T-Mobile, support for the transaction by the FCC likely indicates that the DoJ will also approve the merger. However, FCC officials said they were not working in conjunction with DoJ officials on the merger and that Pai's announcement stood separately from any actions from the DoJ.

Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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