Steve Scott, Sen. Richard Blumenthal

WCBS 880

Blumenthal Expresses 'Very Strong Concerns' About Proposed T-Mobile, Sprint Merger

April 30, 2018 - 3:01 pm

NEW YORK (WCBS 880/AP) -- Sprint and T-Mobile have announced plans to merge in a deal worth a reported $26.5 billion.

The deal announced Sunday would combine the nation's third- and fourth-largest wireless companies and bulk them up to a similar size to Verizon and AT&T, the industry giants.

The companies argued that the combination would allow them to better compete not only with those two rivals but also with Comcast and others as the wireless, broadband and video industries converge.

"This isn't a case of going from four to three wireless companies — there are now at least seven or eight big competitors in this converging market," T-Mobile chief executive John Legere said in a statement. He would be the CEO of the combined company.

But U.S. Sen. Richard Blumenthal (D-Connecticut) sits on both the Senate Commerce and Judiciary committees, and said he has concerns about the merger – and he argued that indeed it is about going from four to three wireless companies.

“I have some very strong concerns about this megamerger because of its potential impact on consumers. In the wireless market, consumers have really benefited tremendously from fierce competition over the last few years, and this consolidation threatens to reduce the number of competitors from four to three, and that could well mean less service and higher prices, which would be beneficial maybe to the stockholders, but not to the consumers,” Blumenthal told WCBS 880’s Steve Scott.

While some say mergers are just a part of business, Blumenthal said reducing competition is not beneficial.

“The mantra of ‘bigger is better’ doesn’t necessarily make sense – particularly as new technologies advance,” he said. “Consumers and our economy need more competition, not less, as there is a new generation of those technologies, and shrinking the number of major carriers really threatens the basic principle of consumer choices, variety of service in the wireless market, and the presence of strong competitors like T-Mobile. They force carriers to offer better prices and services.”

While there is not much Congress can do directly to stop the merger, there are government agencies that Blumenthal said should investigate.

“There ought to be very serious scrutiny, and perhaps steps to block it by the government agencies – the Department of Justice and the Federal Trade Commission – that have responsibility. But Congress has an obligation to scrutinize it as well, and that’s why I hope there’ll be hearings before the Commerce, Science and Transportation Committee or the Judiciary Committee, where I also sit,” he said. “There is a real duty on the part of Congress to protect consumers, and show that these new technologies require more competition with stronger carriers, not fewer of them and weaker ones.”

In the end, most mergers are approved. But Blumenthal said there is a possibility that a merger like this one could be blocked.

“If there is exacting, strong scrutiny, it may well cause the Department of Justice to block this merger, but I’m withholding judgment about what the results should be until there is an investigation by the Department of Justice, and a hearing, I hope, before the Judiciary Committee or another appropriate committee of Congress,” he said.

Bloomberg Editor Sara Forden told Scott and WCBS 880’s Michael Wallace Monday that the DOJ blocking the merger is not an unlikely outcome.

“What we’ve seen is that anti-trust enforcers want to see as much competition in the national market for mobile service, and when they sued to block AT&T from buying T-Mobile – that was back in 2011 – they said in their complaint they want to see four sort of major national competitors in the marketplace, and they now feel that that decision was actually the best thing for the industry and that competition has been thriving since then,” she said.

T-Mobile and Sprint have been considering a combination for years. But a 2014 attempt fell apart amid resistance from the Obama administration.

“SoftBank, which is the Sprint owner, came to the DOJ and asked if he could get a nod or a blessing for this deal, and he was told under no uncertain circumstances to not even consider it,” Forden said.

In 2017, another potential deal fell through as well.

If the merger went ahead, combined company, to be called T-Mobile, would have about 127 million customers. Consumers worry a less crowded telecom field could result in higher prices, while unions are concerned about potential job losses.

In a conference call with Wall Street analysts, Sprint CEO Marcelo Claure acknowledged that getting regulatory approval is "the elephant in the room." One of the first things the companies did after sending out the deal's news release was to call Ajit Pai, chairman of the Federal Communications Commission.

The companies stressed that they plan to have more employees following the combination, particularly in rural areas, than they do as stand-alone companies now.

They also emphasized that the deal would help accelerate their development of faster 5G wireless networks and ensure that the U.S. doesn't cede leadership on the technology to China.

And they said the combination would allow them to better compete with a growing number of competitors in a changing market.

Verizon and AT&T have been expanding their video-content businesses, while cable companies have been moving into wireless. That allows a single company to combine home and wireless internet and use content to support the communications businesses.

Comcast, the cable giant that finished buying NBCUniversal in 2013, offers customers wireless service by reselling access to Verizon's network. So does another dominant cable company, Charter.

The all-stock deal values each share of Sprint at slightly more than 0.10 T-Mobile shares. Deutsche Telekom, T-Mobile's parent, would own about 42 percent of the combined company. Japan's SoftBank, which controls Sprint, would own 27 percent, and the remainder would be held by the public.

The companies said they expect the deal to close by the first half of 2019 and would result in about $6 billion in annual cost savings.

Investors have been anticipating a deal like this for some time. In addition to the thwarted attempt three years ago, the two companies were poised to combine in October, but the deal was called off after what analysts said was a disagreement over control of the combined company.

In addition to the Justice Department, the deal will have to be reviewed by the FCC.

National carriers had not been able to get a deal through under President Barack Obama. But the FCC in September deemed the wireless market "competitive" for the first time since 2009, which some analysts say could make it easier to present a deal.

The 5G aspirations are at the heart of the agreement, and the new technology could allow companies to provide faster service to people's homes.

Sprint's Claure likened going from 4G to 5G to switching from black-and-white television to color. The combined company plans to invest up to $40 billion in its network in the first three years, which executives said would drive more hiring and better service for customers.

Historically, it was Sprint that wanted to buy T-Mobile, Forden said.

“Well actually, initially, it was Sprint wanted to buy T-Mobile, and T-Mobile has been seen as what they call the maverick. This is a company that’s scrappy, that’s a disruptor, that is undercutting, you know, the prices and the packages that were being offered by the big competitors,” she said. “And here, you know, the famous duopoly in this market is AT&T and Verizon, so the anti-trust enforcers were seeing T-Mobile as kind of the young, scrappy company that was keeping the big guys honest. Now, Sprint has come back and, you know, in the meantime T-Mobile got bigger and more successful, and so now, it’s actually in a better position to do a takeover than it was a few years back.”

But now, Sprint has a lot of debt and has posted a string of annual losses. It has cut costs and made itself more attractive to customers, BTIG Research analyst Walter Piecyk said, but it hasn't invested enough in its network and doesn't have enough airwave rights for quality service in rural areas.

T-Mobile, meanwhile, has been on a yearslong streak of adding customers. After the government nixed AT&T's attempt to buy the company in 2011, T-Mobile led the way in many consumer-friendly changes, such as ditching two-year contracts and bringing back unlimited data plans.

Consumers are paying less for cellphone service thanks to T-Mobile's influence on the industry and the resulting price wars.

Advocacy organizations said the deal will likely lead to higher cellphone plans because there will be less competition. Michael Copps, a former FCC chairman and an adviser to the watchdog group Common Cause, said consumers will "lose a lot of the innovation and competitive spirit that T-Mobile had" when it was challenging not just AT&T and Verizon, but Sprint as well.

But Mark Lowenstein, a mobile-industry consultant, said the move shouldn't be seen as a consolidation in the wireless industry.

"That era is over," he said. "This is a new industry structure — where wireless is competing in the larger broadband space."

The move makes sense for developing 5G, he added.

"There is no way we were going to build four national 5G networks," he said. The combination "gives the U.S. a better chance of getting to 5G faster, innovating quicker, and competing with China in the global 5G race."

Shares of T-Mobile fell $4.80, or 7.4 percent, to $59.72 in afternoon trading Monday. Sprint shares fell 97 cents, or 15 percent, to $5.53.

(© 2018 WCBS 880. The Associated Press contributed to this report.)