Why regulators are the big winners in the failed Sprint-T-Mobile deal


(REUTERS/Andrew Kelly)

The telecom industry's worst-kept secret is no longer.

Merger talks between Sprint and T-Mobile — which were never formally announced — have reportedly collapsed under the weight of regulatory scrutiny.

"We didn't think the opposition would be this strong," according to an executive from Softbank, Sprint's parent company, in an interview with Reuters.

Sprint is no doubt smarting from the breakdown this morning. But even as it licks its wounds, appointing a new chief executive in the billionaire Marcelo Claure, regulators are standing tall.

“Four national wireless providers is good for American consumers," said Tom Wheeler, chairman of the Federal Communications Commission. "Sprint now has an opportunity to focus their efforts on robust competition.”

For months, the FCC has been sending signals that it viewed the merger skeptically. Now, with Sprint having backed off of T-Mobile, the commission stands to benefit as it prepares for a major auction of wireless spectrum — the airwaves that carry mobile data and cellphone calls — next year. In the auction, the FCC will take spectrum from TV broadcasters looking to sell, and then turn around and sell it back to wireless carriers. More carriers means more competition in the auction — and that's good for the agency, which hopes to use the event as a fundraiser of sorts.

"A four-player industry structure," said analyst Craig Moffett, "is likely to yield much more robust bidding for spectrum."

The FCC also successfully got Sprint to give up the chase without resorting to steps such as ones taken by then-chairman Julius Genachowski in 2011, when the commission shot down an AT&T-T-Mobile merger with an administrative law review and a staff report. The report found that the two companies had "failed to meet their burden" of explaining why the benefits of a merger outweighed the harm to competition.

With much of the discussion over Sprint and T-Mobile taking place behind closed doors, there wasn't as much for the FCC to address directly this time. But it kept dropping hints about its position. The commission most recently said that wireless carriers would be forbidden from teaming up to buy spectrum in the upcoming auction — a move that analysts said was clearly directed at Sprint and T-Mobile.

Others said that if the merger had moved forward, the entire auction might have been put in jeopardy.

"We think the FCC might well have delayed its mid-2015 auction," wrote Guggenheim Securities analyst Paul Gallant in a research note, "if the final merger outcome was still tied up in a lengthy court challenge."

With so much riding on the auction — an event Wheeler has described as "once-in-a-lifetime" — and with so few obvious benefits of approving a merger, it's little surprise the FCC opposed the deal. Now that it's fallen apart, the agency can turn its full attention to the other mergers on its plate, involving Comcast and Time Warner Cable on the one hand and AT&T and DirecTV on the other.

"The big winner here is the FCC," said Moffett.

 

Brian Fung covers technology for The Washington Post, focusing on telecom, broadband and digital politics. Before joining the Post, he was the technology correspondent for National Journal and an associate editor at the Atlantic.
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