Just over a year ago, T-Mobile, the third-largest wireless carrier, announced plans to acquire Sprint, the fourth-largest carrier. In the Obama era, regulators stepped in multiple times to prevent the U.S. wireless market from shrinking to just three major players via consolidation.
But on Monday, Trump-appointed Federal Communications Commission Chairman Ajit Pai said he would favor approving the proposed T-Mobile-Sprint deal after the carriers agreed to some fairly stringent conditions, including potential fines of up to $2.4 billion. “In light of the significant commitments made by T-Mobile and Sprint as well as the facts in the record to date, I believe that this transaction is in the public interest and intend to recommend to my colleagues that the FCC approve it,” Pai said in a statement. “This is a unique opportunity to speed up the deployment of 5G throughout the United States and bring much faster mobile broadband to rural Americans. We should seize this opportunity.”
Sprint’s (S) stock soared 25% and T-Mobile’s (TMUS) shares rose 5% on the news, which was seen as a clear signal that the conditions are likely to win the support of a majority of the five-member FCC plus the Justice Department. Here are five key reasons why the deal is now likely to be approved in the next few months:
1. Protecting the prepaid wireless market
The cheapest wireless phone plans available are from so-called prepaid services, which require customers to pay monthly in advance. Together, Sprint and T-Mobile would have had control of nearly 50% of the prepaid market, according to opponents of the deal. So the two companies on Monday announced that they would spin off Sprint’s largest prepaid brand, Boost Mobile, as a separate company that would compete against the newly-merged carrier.
2. Faster 5G wireless service–and in more places
One of the main promises the two companies used to gain approval of their merger was that they would be able to offer new, super-fast 5G wireless services in more places, more quickly. FCC officials, speaking to reporters in a briefing on Monday, said the agency agreed with that premise. Sprint has a huge amount of spectrum licensed in the 2.5 GHz band, perfect for 5G, but lacks the financial wherewithal on its own to build a 5G network in much of the country. T-Mobile is just finishing building a new network for 4G using the 600 MHz band. FCC officials said they believed that it could be easily and quickly upgraded to 2.5 GHz 5G.
3. Trust but verify. And keep a big penalty at the ready
The FCC and other authorities have sometimes imposed merger conditions that have turned out to lack teeth. Cable company Charter Communications was recently found to have failed to meet its merger commitments to offer high-speed Internet service in New York, for example. So with Sprint-T-Mobile, regulators added a major financial penalty, too.
Sprint and T-Mobile promised to offer 5G service to 97% of the U.S. population within three years and 99% after six years. But the carriers on Monday also agreed to a series of annual, escalating penalties if they miss the targets. The merged company could have to pay as much as $2.4 billion annually for failing to meet its commitments.
4. Price promises
The biggest and most obvious reason that many opposed the merger was the possibility that consumers would have to pay more for wireless service in a theoretically less competitive market that had three major players, instead of four. T-Mobile executives from CEO John Legere on down have sought to counter that concern by promising not to raise prices for three years, and promising not to charge more for 5G service. Those promises were enough, said Pai and top FCC officials. There’s no wiggle room for tricky price hikes amid the promises, and the agency is confident that any stealthy attempt to raise prices would be quickly uncovered and publicized by tech-savvy consumers or rival carriers.
5. Real coverage promises
Another way the wireless industry has sometimes acted in a shady manner is by disseminating coverage maps that don’t truly reflect the signal strength that consumers experience (a 2016 Sprint TV ad carried the small print disclaimer that a coverage map shown in the ad did not actually display coverage).
So the FCC won’t allow the new T-Mobile to prove it is meeting its coverage promises with maps. Instead, T-Mobile will have to conduct extensive real world tests overseen by an independent third party. Such measurements, known as drive tests, will prove accurately whether the carrier has met its promises, FCC officials said.