Deals Logjam Won’t Help Japanese Billionaire Get T-MobileTodd Shields and David McLaughlin
Sprint Corp. Chairman Masayoshi Son won’t be able to ride the regulatory coattails of pending U.S. telecommunications deals if he decides to buy T-Mobile US Inc.
Regulators are preparing to vet proposed acquisitions worth more than $45 billion each from Comcast Corp. and AT&T Inc. Those transactions, involving pay-television services, pose different issues for competition and the public interest than the combination of wireless-service providers Sprint and T-Mobile.
Of the pending deals, a Sprint purchase of Bellevue, Washington-based T-Mobile is “going to be the hardest one to get through,” said Jeff Blumenfeld, an attorney at Lowenstein Sandler LLP. “You have direct competitive overlap in an already concentrated industry.”
Ever since they went to court to block AT&T’s proposed acquisition of T-Mobile in 2011, regulators have insisted they want to preserve four competitors in the U.S. wireless marketplace, where Sprint and T-Mobile are No. 3 and No. 4. Son, a Japanese billionaire, is preparing to move as soon as July in the face of those warnings, people with knowledge of the matter said.
The Federal Communications Commission looks at the public interest when reviewing acquisitions, and the Justice Department considers the antitrust effects. Telephone-service provider AT&T last month announced its $48.5 billion bid to buy satellite-television company DirecTV. Comcast, the largest U.S. cable company, said in February it would spend $45.2 billion to acquire its largest national competitor, New York-based Time Warner Cable Inc.
Son, founder of Tokyo-based mobile provider SoftBank Corp., is seeking to bulk up Overland Park, Kansas-based Sprint as consolidation sweeps the communications industry. Verizon Communications Inc. closed a deal earlier this year to buy out Vodafone Group Plc’s stake in their wireless venture for $130 billion.
Son has argued that as technology converges, a new market for Internet services is emerging in which AT&T, Verizon and Comcast are the three giants. He views a combined Sprint and T-Mobile as a counterweight, able to offer wireless high-speed Internet to compete with phone and cable modems.
SoftBank has declined 16 percent in Tokyo trading this year, underperforming Japan’s benchmark Topix index, which is down 5.2 percent. The shares fell 1.6 percent to 7,695 yen at today’s close.
“The theory that because everybody else is getting big, so you have to let me get big, has a lot of political resonance,” Blair Levin, a former chief of staff for the FCC, said in an interview. “It doesn’t have antitrust resonance.”
U.S. warnings include a filing last month in which the Justice Department opposes a reduction in the number of competitors in the wireless industry. In January, Bill Baer, the head of the department’s antitrust division, lauded T-Mobile for spurring competition in the market after the U.S. sued to block its takeover by AT&T.
“There’s no substantive interaction between the deals,” Paul de Sa, a New York-based analyst at Sanford C. Bernstein & Co., said in an interview. “Sprint, the core issue is going to be mobile competition, and Comcast-Time Warner Cable there is no core issue, and AT&T-DirecTV the core issue is video.”
Comcast has argued that its transaction wouldn’t harm competition because the Philadelphia-based provider doesn’t compete with Time Warner Cable for cable viewers. AT&T’s U-verse video service had about 5.7 million customers at the end of the first quarter, compared with DirecTV’s 20.3 million U.S. customers.
In the wireless market, AT&T and Verizon had a combined 219.3 million wireless customers in the first quarter of this year, more than twice the number for Sprint and T-Mobile together, according to data compiled by Bloomberg.
Decisive scrutiny will come from antitrust experts who aren’t much moved by emotive campaigns, said Reed Hundt, a former Democratic chairman of the FCC. He said antitrust is “a little bit like religious people cloistered in some mountain church. They in their hermitage will not be that influenced by political considerations.”
Crystal Davis, a spokeswoman for Sprint, and Timothy O’Regan, a T-Mobile spokesman, declined to comment.
“The big mystery is: if they don’t have a game-changing idea, then what are they doing?” Robert McDowell, a former Republican member of the FCC, said in an interview. “They would have to offer something that checks off items on the Obama administration’s policy to-do list.”
Examples might include creating a robust wholesale wireless service or divesting airwaves to a high-tech consortium, McDowell said.
Antitrust investigators will examine existing competition in the wireless market and not potential competition with an enlarged Comcast years from now, Harry First, a law professor at New York University, said in an interview.
Son’s possible argument that a merged company will be better able to compete with AT&T and Verizon is “dubious,” First said.
“The straightforward economics is there’s less competition with three than four,” he said. “They can say all day long we’ll compete like hell but they’ll pursue their self-interest like hell.”
If the Justice Department wants to block a deal it must ask a U.S. judge to do so, and Sprint and T-Mobile could make a case their combination would enhance wireless competition, Paul Gallant, a Washington-based analyst at Guggenheim Securities LLC, said in a June 2 note.
The companies “are likely hoping that federal courts would reverse any negative ruling by regulators,” Gallant said.
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