Analysts at MoffettNathanson have lowered their odds to less than half that Sprint and T-Mobile’s proposed $26.5 billion deal will be approved— not because the merits of the deal have changed since first announced, but because politics have.
Previously, the firm pegged the merger’s chance of approval at 50 percent, but in a Tuesday note to investors, senior analyst Craig Moffett said the firm now puts the odds at one in three (33 percent).
“It’s time to acknowledge that the odds of the deal are less than a coin toss,” Moffett wrote.
T-Mobile has recently been promoting commitments of the new company if it’s allowed to combine with Sprint, including keeping prices the same for three years after the deal closes and competing with cable companies by bringing broadband to rural areas via 4G fixed wireless service.
Moffett noted that regulatory reviews are in late stages.
“It can only be a bad sign, then, that T-Mobile has thrown two Hail Mary passes in recent weeks,” Moffett wrote. “When was the last time you saw a Hail Mary pass from a team that was ahead?”
T-Mobile and Sprint argue that their merger is not only needed to compete against Verizon and AT&T in 5G, but will lower prices for consumers, and actually create jobs. Opposition groups have argued the merger will eliminate wireless competition and increase prices.
Potential for a lawsuit in federal court to block the deal may be looming. Moffett pointed to a recent Bloomberg article that says states are considering filing an antitrust lawsuit to stop the deal even if approved by the DOJ.
Approval of the T-Mobile/Sprint deal from the FCC and DOJ would likely be cast as ‘Republican’ and ‘pro-business, anti-consumer,’ the analyst points out, noting politics are important here.
The firm says that since states would likely have a good case based on the DOJ’s own 2010 merger guidelines, it “raises the odds that the DOJ will preemptively reject the deal, lest they leave the door open to an embarrassing reversal at the hands of the Democrats.”
The optics from recent DOJ antitrust decisions are not helping either. Media reports previously suggested the White House may have tried to have a hand in influencing the DOJ objection to the AT&T-Time Warner merger because of President Trump’s distaste for CNN.
This, Moffett writes, “only adds to the pressure on the DOJ to avoid this potential embarrassment,” since the agency’s own guidelines suggest T-Mobile/Sprint should be blocked, whereas many did not think the DOJ had a strong case when antitrust chief Makan Delrahim sued to block the AT&T-Time Warner deal.
“Approval therefore, would only make their decision in the AT&T case look all the more capricious (and potentially inappropriate),” Moffett wrote.
Still, politics are not clear cut and Moffett acknowledged that the firm can’t answer “with anything close to definitiveness” how the process will shake out.