California attorney general’s opposition to T-Mobile/Sprint deal will be the deciding factor in CPUC’s review

by Steve Blum • , , , ,

Tmobile san francisco 18may2019

Advice from California’s attorney general hasn’t played much of a role in the California Public Utilities Commission’s review of major telecoms mergers in recent years, but T-Mobile’s proposed takeover of Sprint will be different. Attorney general Xavier Becerra’s forceful opposition to the merger will, all but certainly, figure prominently in whatever decision the CPUC makes.

When evaluating major transactions involving regulated utilities, state law requires the CPUC to “request an advisory opinion from the attorney general regarding whether competition will be adversely affected and what mitigation measures could be adopted”.

Mere advice or not, the AG’s office expects the CPUC to listen. Or at least it did in 2015 when it gave a green light to the Frontier’ purchase of Verizon’s wireline telephone systems. The opinion from then-attorney general Kamala Harris warned that even though California law considers it “as advisory” and does not require the commission to defer to it, “the attorney general’s advice is entitled to the weight commonly accorded an attorney general’s opinion” and “attorney general opinions are generally accorded great weight”.

Three big telecoms deals have been reviewed by the CPUC in the past five years – Frontier’s takeover of Verizon’s territories, Comcast’s three-way purchase and market consolidation deal with Charter Communications and Time Warner Cable and, after that was killed by federal antitrust enforcers, Charter’s takeover of Time Warner.

I’ve looked through the records of those three cases, and a formal opinion from the California AG appears in only one – Frontier/Verizon. It found that allowing Frontier to take over operation of Verizon’s decaying copper lines would “not adversely impact competition”, since the two companies didn’t compete directly with each other and the deal wouldn’t block new market entrants. That finding was cited among the many reasons the CPUC approved the transaction, albeit with a long list of conditions.

No mention was made, though, of AG opinions in the course of the CPUC’s review of the two cable transactions. It’s worth noting that the same logic might be applied – like telcos, cable companies don’t directly compete with each other in local markets.

That’s not true of T-Mobile and Sprint. They’re fierce competitors, particularly at the lower end of the mobile broadband and voice market, and approval of their merger depends on whether DISH can plausibly replace the competitive heat that would be lost if they combine. That’s a far more complicated question to answer. I think it’s a safe bet that the AG’s office will respond to the CPUC’s pro forma request for advice, and it won’t be ignored.