In a major win for T-Mobile and Sprint, FCC Chairman Ajit Pai on Monday announced he intends to recommend approval of the pair’s proposed $26 billion merger, citing commitments that include rural 5G buildouts and the divestiture of Sprint’s Boost Mobile prepaid brand.
In addition to the Boost concession, T-Mobile today formally announced and reiterated promises related to 5G network buildouts, expanding high-speed coverage to rural areas, offering in-home broadband and maintaining current prices for three years.
Pai in his statement said the commitments would “substantially advance” FCC objectives of accelerating 5G deployments and closing the digital divide in America.
“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,” said Pai. “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.”
When considering competition, the FCC was particularly focused on concerns in the low-cost prepaid wireless market, according to senior FCC officals. To address this issue T-Mobile agreed to divest Sprint’s prepaid brand Boost Mobile within 120 days of closing the merger (with room for two 30-day extensions). The sell-off terms would involve a six-year whole sale MVNO agreement. The Commission’s Wireless Telecommunications Bureau will also be in charge of approving or rejecting the wholesale agreement negotiated between T-Mobile and Boost.
The companies also promised the new T-Mobile would not terminate and would negotiate in good faith to extend the infrastructure-based MVNO agreement currently between Altice USA and Sprint to T-Mobile’s network.
In seeking regulatory approval for the deal, T-Mobile and Sprint commit to cover 97 percent of the U.S. population with low-band 5G within three years of the merger closing, and cover 75 percent with mid-band 5G coverage. Within six years, low-band 5G coverage would extend to 99 percent of Americans, with mid-band 5G covering 88 percent of the U.S. population population.
Specific to rural America, the company promised its nationwide low-band 5G service would cover at least 85 percent of the rural population within three years and mid-band 5G would cover 55 percent. By year six, the combined company’s low-band 5G would cover 90 percent of Americans in rural areas, and mid-band 5G would cover 66.7 percent of the rural population.
“The construction of this network and the delivery of such high-speed wireless services to the vast majority of Americans would substantially benefit consumers and our country as a whole,” Pai said.
The companies also recommitted to a three-year price freeze and not to increase consumer prices 5G. Within three years, the new T-Mobile would market in-home broadband service to 9.6 million eligible households, including at least 2.6 million in rural areas. In that timeframe, the combined company would deliver broadband speeds of at least 50 Mbps to two-thirds of the rural population, and at least 100 Mbps to more than half. Within six years they promise 99 percent of the total U.S. population will have access to speeds of at least 50 Mbps and 90 percent will have access to at least 100 Mbps or more. For details on the T-Mobile commitments check here.
T-Mobile and Sprint agreed make monetary payments if deadlines aren’t met.
When it comes to the 5G coverage promises, the new T-Mobile won’t be able to only submit coverage maps, but would also need to perform extensive drive tests to verify coverage and speeds. These tests would take place at the end of years three and six. T-Mobile would fund and could perform the drive tests, which must also be verified by a third party.
If the new T-Mobile fails to meet its commitment deadlines, the company agrees to make payments, with a maximum payment of $2.4 billion after the six-year mark, which is repeatable. Payments are calculated based by how much the target is missed by. For example if the new company missed each of its commitments by 20 percent, then it would result in a combined $800 million payment.
T-Mobile and Sprint have consistently touted the ability to provide broad 5G coverage by combining T-Mobile’s 600 MHz and Sprint’s 2.5 GHz spectrum holdings, and have promised to cover two-thirds of the rural population with mid-band 5G spectrum. Importantly, the FCC does not plan to require any spectrum divestitures, and the commission considered Sprint’s ability to utilize its large swath of mid-band spectrum, particularly in rural America, without the deal.
Sprint executives previously expressed that the nation’s fourth largest carrier would not be able to compete as well on a national level without the merger. Given T-Mobile’s build out plans and Sprint’s current condition, the 2.5 GHz spectrum is much more likely to be put to use by the combined company than if the deal were not approved, according to senior FCC officials.
Groups including the Communication Workers of America previously raised concerns over job cuts, and the concessions made today by Sprint and T-Mobile don’t explicitly address jobs.
Not a Done Deal
The FCC has not formally approved the transaction yet, and the DOJ also must still sign off. State Attorney Generals could also still object.
Commissioner Brendan Carr announced his support for the merger, saying ““the proposed transaction will strengthen competition in the U.S. wireless market and provide mobile and in-home broadband access to communities that demand better coverage and more choices.”
Commissioner Jessica Rosenworcel, meanwhile, tweeted that she has “serious doubts,” and acknowledged she’s reviewing the proposed conditions.
Free Press VP of Policy and General Counsel Matt Wood expressed opposition saying, “The conditions proposed in yet another policy-by-press-release Pai statement would do nothing to alleviate this deal’s obvious harms, especially to low-income populations, communities of color and anyone seeking a more affordable price for essential wireless communications.”
Wells Fargo Senior Analyst Jennifer Fritzsche wrote in a Monday note to investors that the firm sees the development “as a significant positive for the prospects of the deal,” though acknowledged surprise at the lack of mid-band spectrum divestitures, “which has implications for other telecom carriers.”
Sprint and T-Mobile recently extended their deadline for the deal until July 29.