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Sprint, T-Mobile receive merger approval from Justice Department

To win federal regulators’ blessing, the telecom giants pledged to sell critical lines of business to Dish Network, which stands to become a new player in the wireless market

The Justice Department approved the $26 billion merger between Sprint and T-Mobile on July 26. (Video: Reuters)

Federal regulators approved the $26 billion merger between T-Mobile and Sprint on Friday, setting the stage for a tectonic shift in the U.S. wireless industry at a moment when carriers are racing to deploy the next generation of ultrafast mobile service.

The green light from the antitrust watchdogs at the Justice Department marks a critical milestone in the long-running campaign by T-Mobile, the country’s third-largest carrier, to combine with Sprint, the fourth, and form a new telecom giant that is expected to serve more than 100 million subscribers nationally — rivaling the even larger footprints of AT&T and Verizon.

In selling their plans to Washington, T-Mobile and Sprint emphasized that only through merging could they build and deploy speedy 5G service nationwide, which they committed earlier this year to bringing to 97 percent of the U.S. over the next three years.

Justice Department officials still harbored competition concerns about the deal, fearing the loss of a major national wireless carrier would leave American consumers with too few choices — potentially resulting in higher prices. In response, the agency required T-Mobile and Sprint to sell critical elements of business to Dish Network, with the goal of positioning the satellite-television company as a new competitor in the wireless industry.

“We’ve reached a historic structural settlement with T-Mobile and Sprint after concluding their merger, without this remedy, would substantially harm competition,” said Makan Delrahim, the leader of the Justice Department’s antitrust division. “The remedies set up Dish as a disruptive force in wireless.”

Immediately, critics blasted the government for blessing even more consolidation among existing telecom behemoths. Dish pledged it would build out new wireless service to 70 percent of the country by 2023, but analysts expressed concern that the Englewood, Colo., company might never hit its target, given the sheer cost of building such 5G coverage at a moment when Dish has been shedding customers.

Those fears emboldened state attorneys general, including those in California and New York, who earlier this year sued T-Mobile and Sprint in a bid to stop them from merging. “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,” New York Attorney General Letitia James said in a statement Friday.

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For now, the Justice Department’s decision removes a significant federal hurdle that had been standing in the way of the two telecom giants, which had flirted for years over a potential tie-up but repeatedly abandoned their plans in the face of sustained Washington skepticism. Absent divestitures to Dish, the department said on Friday that it would have sued to stop the deal.

A federal judge still must approve the companies’ settlement with the Justice Department. The Federal Communications Commission also has to bless the deal, though that agency’s Republican leaders previously expressed public support for the two wireless giants’ plans — and signaled Friday their formal green light would come soon.

T-Mobile, which is operated by Germany’s Deutsche Telekom, and Sprint, which is owned by the Japanese conglomerate SoftBank, announced their merger last April. Without such a combination, T-Mobile and Sprint said they could not muster the necessary investments individually to develop and deploy 5G services, putting them at a major disadvantage against AT&T and Verizon.

The two wireless carriers began pitching the deal to the FCC, which reviews mergers to see if they benefit the public, and the Justice Department, which studies competition, at a moment when Democrats and Republicans alike in Washington had started sounding new alarms about the dangers of corporate consolidation. In recent months, the merger attracted heightened attention from several presidential candidates, with Sens. Cory Booker (D-N.J.), Kirsten Gillibrand (D-N.Y.), Amy Klobuchar (D-Minn.), Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.) signing onto a letter that said it would result in “unacceptably high levels of concentration in an already consolidated wireless industry.”

Consumer groups such as Public Knowledge echoed those concerns, arguing a combined T-Mobile and Sprint would result in higher prices and fewer options for consumers. Many critics pointed to the fact that T-Mobile had already become a fierce competitor — offering more customer-friendly contracts, for example — precisely because the government had warded off an attempted merger by the two companies in the past.

But T-Mobile and Sprint offered concessions to reshape their merger in recent months in a bid to win over federal regulators. In May, the companies pledged to build out 5G wireless to most of the country, including much of rural America, while offering “same or better rate plans at the same or better prices” for the next three years. The announcement satisfied FCC Chairman Ajit Pai, who warned the companies would “suffer serious consequences” if they break their promises.

To assuage the Justice Department, T-Mobile and Sprint agreed to divest key assets that would help Dish become a fourth national wireless carrier — including hundreds of retail stores, thousands of cell sites and licenses to the invisible airwaves, known as spectrum, that power wireless service. The merging companies also will give up their prepaid phone businesses, Boost Mobile and Virgin Mobile.

The deal, which is valued at more than $5 billion, will allow Dish to offer service over T-Mobile’s network until it’s able to operate its own, Delrahim said. Existing spectrum holdings at Dish helped the companies sell their plan to the Justice Department, officials said Friday, and Dish must meet its build-out targets or face billions of dollars in federal penalties.

T-Mobile announced a merger needing Trump administration approval. The next day, 9 executives had reservations at Trump’s hotel.

“Taken together, these opportunities will set the stage for our entry as the nation’s fourth facilities-based wireless competitor and accelerate our work to launch the country’s first stand-alone 5G broadband network,” Charlie Ergen, the chairman and co-founder of Dish, said in a statement.

Some of the deal’s skeptics, however, said the companies’ concessions are unlikely to address their concerns: It could take too long for the sale of spectrum and other assets to Dish to result in a carrier able to compete with AT&T, Verizon and a merged T-Mobile and Sprint.

“A new mobile wireless entrant that starts with zero postpaid subscribers and that must rely on its much bigger rival, the new T-Mobile, just to operate is not a competitor. It’s a mobile Frankenstein,” said Gigi Sohn, a distinguished fellow at the Georgetown Law Institute for Technology Law & Policy.

The deal replaces a weak competitor in Sprint with a potentially weaker one in Dish, said Roger Entner, a wireless industry analyst and founder of Recon Analytics. The constraints on Dish’s business would prevent it from being able to price its services competitively, he said. Adding to Dish’s challenges, he said, consumers seem to care more about reputation than price in choosing a carrier.

Dish finished last year with 9.9 million satellite-TV subscribers, down more than 25 percent from five years ago, and less than half the total of its top rival, AT&T-owned DirecTV. The Dish-owned streaming service, Sling, finished the year with about 2.5 million subscribers.

Dish also saw a $320 million purchase of the Blockbuster video chain in 2011 fizzle, with the company closing nearly all stores just several years later.

Many Democrats also remained unconvinced. FCC Commissioner Jessica Rosenworcel said earlier this year she had “serious doubts” about consolidation in wireless. On Friday, she said, “I remain skeptical that this combination is good for consumers, good for competition, or good for the economy.”

Brendan Carr, a Republican commissioner at the FCC, took a different view: “I think even without the Dish piece of this, our record was very clear about the consumer benefits that are going to derive from [the merger].”

Taylor Telford and Steven Zeitchik contributed to this report.