T-Mobile, Sprint ordered to halt merger in California, but don’t seem to care what CPUC thinks

by Steve Blum • , , , ,

Caltrans flagger stop

T-Mobile and Sprint completed their merger yesterday morning, but they’ll have to wait at least a couple more weeks, and maybe longer, for a decision from the California Public Utilities Commission before they can begin combining their operations in California.

If.

If they pay any attention to an order issued yesterday afternoon by CPUC commissioner Clifford Rechtschaffen. Responding to a Tuesday night letter from T-Mobile’s then-COO and now CEO Michael Sievert, Rechtschaffen ruled…

[California] Public Utilities Code Section 854(a) states in relevant part that “[n]o person or corporation, whether or not organized under the laws of this state, shall merge, acquire, or control … either directly or indirectly, any public utility organized and doing business in this state without first securing authorization to do so from the commission.” Both Joint Applicants, T-Mobile and Sprint, have California subsidiaries that are public utility telephone corporations under state law, and subject to the jurisdiction of this agency. The merger of the companies’ operations in California is therefore subject to CPUC approval. Accordingly, Joint Applicants shall not begin merger of their California operations until after the CPUC issues a final decision on the pending applications.

There’s good reason to think the two companies will effectively ignore the order. In the letter, Sievert told Rechtschaffen and CPUC administrative law judge Karl Bemesderfer that they “lack jurisdiction” over the merger, and he would close it without their blessing. Rechtschaffen is the “assigned commissioner” for the CPUC’s review, which means he oversees it, and Bemesderfer is managing it.

In lengthier comments filed yesterday, T-Mobile’s lawyers tried to offer a legal basis for that point of view, but Rechtschaffen is unconvinced, to say the least.

T-Mobile’s defiance is risky, as the company acknowledged yesterday in the fine print of its triumphal press release

There are several factors that could cause actual plans and results to differ materially from those expressed or implied in forward-looking statements. Such factors include, but are not limited to…the risk of litigation or regulatory actions, including litigation or actions that may arise from T-Mobile’s consummation of the business combination during the pendency of the California Public Utility Commission’s review of the business combination.

“Regulatory actions” will happen, beginning with the CPUC’s review of the merger, which is scheduled to go to a commission vote on 16 April 2020. Assuming it’s approved more or less as written, the draft of that decision imposes a long list of service and employment conditions on the combined company. Fines and other penalties are also possible, although that will take months, if not years, to sort out.

What is certain to follow, though, is litigation. T-Mobile says its mobile business isn’t governed by California law. Rechtschaffen says it is, and it’s a good bet his fellow commissioners agree. That dispute will have to be settled in a federal court.

Assigned Commissioner’s Ruling, T-Mobile/Sprint merger, 1 April 2020

T-Mobile letter informing CPUC of intent to complete merger, 31 March 2020

Comments on the proposed decision of administrative law judge Karl Bemesderfer, 1 April 2020:
Joint Applicants (T-Mobile and Sprint)
CPUC Public Advocates Office
Communications Workers of America
TURN
Greenlining
California Emerging Technology Fund

TURN and Greenlining protest of Sprint’s CPCN relinquishment, 1 April 2020
CPUC Public Advocates Office, notice of ex parte meeting with CPUC president Marybel Batjer’s staff, 1 April 2020
Communications Workers of America, notice of ex parte meeting with CPUC president Marybel Batjer’s staff, 1 April 2020

Links to arguments and exhibits filed at the CPUC and elsewhere are here.

My clients include California cities who do business with T-Mobile. I like to think that has no bearing on my commentary. Take it for what it’s worth.