The merger of T-Mobile and Sprint looks increasingly inevitable on Monday after Ajit Pai, the chairman of the Federal Communications Commission, said he’ll recommend approving the $26.5 billion deal due in large part to the idea that it will hasten 5G deployment around the United States. But critics say that reasoning is bogus.
The merger, which still needs the support of the Justice Department, hinges in large part on promises made by the two companies to woo regulators. Many of the important promises are vague while one specific promise—that the companies will build a 5G network thanks to the merger—doesn’t sound too meaningful since they already planned nationwide 5G deployment since before the merger was happening.
Pai, however, is fully backing the merger on that basis.
“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,” Pai said in a statement.
A merger will leave the United States with three nationwide wireless providers.
The merged company, which will divest from currently Sprint-owned Boost Mobile in order to increase competition in the prepaid wireless market that largely serves lower-income customers, will file an annual report with the FCC on 5G deployment and will pay for independent compliance tests. Pai says the companies could face billions in fines if they don’t keep their promises.
Consumer rights groups including Free Press objected to Pai’s announcement.
“The digital divide isn’t just about rural buildout — though as others opposing the deal have shown, the merged companies’ spectrum wouldn’t allow for decent rural coverage at 5G speeds,” said Free Press Vice President of Policy and General Counsel Matt Wood. “Both T-Mobile and Sprint are already building 5G networks without the deal. The digital divide the FCC should focus on is the affordability crisis. It leads to an adoption gap that makes it hard for poorer people to get online, and it keeps people of color disconnected more often than other demographic groups. People who rely on prepaid services won’t see any benefits from the conditions the FCC is touting with such glee this morning.”
T-Mobile has recently touted its 5G rollout as an “alternative to broadband,” particularly for rural customer with few if any choice in internet providers. However, the company’s 600MHz spectrum, while it has a longer range than the spectrums used by other companies, offers average speeds that are a third as fast. The presumed goal, then, is to combine with Sprint’s faster but shorter-range 5G tech to offer a multi-pronged 5G strategy that will allow the merged company to compete with Verizon and AT&T.
T-Mobile and Sprint said they won’t raise prices for three years, a promise that does not preclude offering new plans at higher prices, as critics have repeatedly pointed out.
The FCC, which is Republican-controlled, will likely vote to support the merger. Democrats under the Obama administration previously nixed this merger effort as well as a proposed AT&T and T-Mobile merger on the basis that they would hurt competition and ultimately harm consumers. On Twitter, FCC Democrat Jessica Rosenworcel voiced her disagreement:
“If allowed to proceed, this transaction would consolidate the nation’s wireless market from four to just three carriers, lead to price increases for virtually all wireless customers, substantially raise wholesale rates for smaller wireless carriers, and cause significant job losses—all while failing to deliver the promised benefits of accelerated 5G deployment or expanded rural coverage,” a coalition of public interest groups opposed to the merger wrote in a letter to the FCC and the Justice Department last month. It continued:
“The case against this merger starts with the manifest harms it would cause wireless consumers across the country. Economic analysis in the public record demonstrates that this transaction would result in price increases of more than 15 percent in many cases. Moreover, the combined company would control more than 50 percent of the pre-paid wireless market. This concentration means that pre-paid wireless consumers, who are primarily lower income Americans, would likely see even greater price increases.”
Both T-Mobile and Sprint stocks rose Monday morning when Pai announced his decision. The FCC will vote on the merger on June 15. However, its decision may not matter if the Justice Department blocks the deal, and as of this writing, it’s reportedly planning to do just that.