The objections fall mainly into two categories: procedural and substantive. The procedural objections boil down to “this motion asks the commission to do something that is not provided for anywhere in the rules – to take ‘advisement’ of new facts, after the case has been submitted and the record closed”.
The substantive objections revolve around the sketchy details and uncertain outcome of the settlement that T-Mobile, Sprint and DISH reached with federal justice department. For the past year, the CPUC review has generated thousands of pages of legal argument and testimony about a deal that’s not exactly on the table anymore…
The proposed merger as set forth in this proceeding is solely between Sprint and T-Mobile; however, it appears that Dish Network now has a crucial role in the transaction; namely, to acquire some of Sprint’s assets in order to become a fourth major wireless carrier and allegedly alleviate antitrust concerns. Obviously, Dish’s role in this was not part of the Application because it had not occurred yet; thus, no party has had the opportunity to investigate or analyze the current proposal…
The Commission should consider whether the deal that is actually being proposed is in the public interest.
The standard process for reopening the record and allowing new developments, such as the agreement with DISH to (maybe) launch a competing nationwide mobile network, is lengthier and more contentious. It’s no surprise that T-Mobile, or anyone in their right mind, would want to avoid it. Whether they can or not is in the hands of the administrative law judge managing the case. There’s no particular timeline for him to make a decision.
That’s arguable, but might not matter. The California attorney general took the lead on the competition question. The CPUC, on the other hand, is looking at a broader range of issues, which may include whether the merger is “fair and reasonable to affected public utility employees, including both union and nonunion employees”.
Under the deal, DISH would get Sprint’s “prepaid” – i.e. pay for service in advance – wireless customers, who tend to have lower incomes than “post paid” – billed monthly for services used – subscribers. Those customers will continue to use the networks operated by the new, merged Sprint/T-Mobile company, as will any other customers DISH signs up. In industry jargon, DISH will be a “mobile virtual network operator” (MVNO), reselling services provided by the new T-Mobile company.
T-Mobile agreed to hand over information about employees who work on the “prepaid” side of the house, and make them “available for interviews” in case DISH wants to “make offers of employment”. But DISH isn’t required to hire them, and T-Mobile isn’t required to keep them. Combined with DISH’s decades-long obsession with keeping labor costs low and its reliance on independent retailers, that adds considerable weight to the argument made by the Communications Workers of America that the merger will “eliminate jobs”.
It’s also another reason for the CPUC to not rush to judgement on the merits of the merger, as T-Mobile urged last week. It could be months before a decision, and when it comes it might not be yes.
The T-Mobile/Sprint merger ball is back in California’s court. Friday, T-Mobile, Sprint and DISH reached an agreement to shuffle assets and set the stage for a new, nationwide mobile network to emerge.
Becerra is one of 13 state AGs who are backing a joint lawsuit in federal court, with the goal of blocking the merger as originally proposed. He’s still opposed, saying in a press release “DISH has never shown any inclination or ability to build a nationwide mobile network on its own and has repeatedly broken assurances to the Federal Communications Commission about deployment of its spectrum”.
The CPUC also has to approve the transaction, and its review has been going on for more than a year. Also on Friday, T-Mobile asked Karl Bemesderfer, the CPUC administrative law judge managing the case, to accept the federal government’s wisdom and then speedily approve the merger.
That won’t happen.
The CPUC dances to its own rhythm, and the next beat of the drum is two weeks away: opponents of the deal have that much time to respond to Friday’s motion. It’s not hard to guess what they’re going to say – just read the CPUC public advocates office’s objections to a substantially identical request to “advise the commission” of the endorsement of the merger by the Federal Communications Commission’s republican majority. The PAO argued then that decisions have to be based only on what’s in the CPUC’s official record, and the typical process for adding new information to the record takes weeks, if not months.
An hour before T-Mobile served its CPUC motion on Friday, the California Emerging Technology Fund (CETF) launched a lobbying campaign aimed at pressuring Becerra and the CPUC into “immediately” approving the deal. Back when this all started, CETF opposed the merger, but quickly flipped to enthusiastic support after receiving a $35 million payoff from T-Mobile.
The California Public Utilities Commission can’t act on T-Mobile’s request for permission to acquire Sprint until the middle of September, at the earliest. Yesterday was the deadline for any proposed decisions – in any proceeding, T-Mobile or not – to be placed on the commission’s 15 August 2019 meeting agenda. The next scheduled meeting after that is on 12 September, which means a draft decision would have to be released for the legally required 30-day public review period by 13 August.
Even that date is optimistic. There are two good reasons to doubt that the CPUC will be in any hurry to move ahead on a final decision for the next few months. First, no one knows what the T-Mobile/Sprint deal looks like yet. All the testimony and legal exchanges to date are predicated on the relatively straightforward purchase agreement the two companies announced a year ago. If a new agreement that satisfies the concerns of the federal justice department emerges, the organisations that have been fighting against the original deal at the CPUC will want a chance to review it. That process can be shortened, but even if it moves at lightning speed it will still require several weeks.
Then there’s California attorney general Xavier Becerra, who is one of several state AGs suing to block the merger. He’s gone to court to kill the deal, so it’s a reasonable guess that he hasn’t yet responded positively – or at all – to the CPUC’s request for an opinion, as required by the California Public Utilities Code. T-Mobile might settle its dispute with the state AGs out of court, but if it doesn’t it’s looking at a trial that could stretch into next year, particularly if the judge hearing the case grants the request for a delay made by the states on Monday.
The CPUC might let Becerra worry about the anti-competitive aspects of the deal, and move ahead with a decision regarding other issues such as the merger’s impact on services for low income Californians and infrastructure in rural areas. But the fluid nature of the deal raises the possibility that an early CPUC decision could get overtaken by substantive changes to the terms, which should have been considered. That would be a risky course to take, with little or no gain to the CPUC even if it turned out well.
Extra meetings can happen. The CPUC held one on an emergency basis earlier this year when PG&E filed for bankruptcy, and another is scheduled – with proper notice – for later this month. There are also provisions for waiving the 30-day review period under California law. Don’t expect T-Mobile to get that kind of accomodation, though. The possibility of the lights going out in northern California rates as an emergency; missing an arbitrary corporate deadline does not.
T-Mobile’s proposed merger with Sprint is “presumptively anticompetitive” according to California attorney general Xavier Becerra and eight other state attorneys general (plus their counterpart in the District of Columbia). On Tuesday, they sued the companies in a New York-based federal court with the goal of blocking the deal. The ten – all democrats – say there would be substantial damage to the market for mobile telecoms services if it goes through…
Sprint and T-Mobile are close competitors. Direct competition between Sprint and T-Mobile has led to lower prices, higher quality service, and more features for consumers. If consummated, the merger will eliminate the competition between Sprint and T-Mobile and will increase the ability of the three remaining MNOs to coordinate on pricing. The new combined company will also have reduced incentives to engage in innovative strategies to attract and retain customers compared to Sprint and T-Mobile today…The cumulative effect of this merger, therefore, will be to decrease competition in the retail mobile wireless telecommunications services market and increase prices that consumers pay for mobile wireless telecommunications services.
One likely side effect is that the California Public Utilities Commission’s review of the merger will be further delayed, perhaps indefinitely. Under some circumstances, when reviewing mergers California 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 to avoid this result”. Since the lawsuit asks that T-Mobile and Sprint “be permanently enjoined from and restrained from carrying out the merger”, Becerra won’t be suggesting mitigation measures until the case is either decided by the court, or a settlement is negotiated. T-Mobile has argued that the particular circumstance involved – annual California revenue of half a billion dollars or more – doesn’t apply in this case, but so far hasn’t prevailed.
Even if the federal justice department has an Ajit Pai-like epiphany about T-Mobile’s proposed takeover of Sprint and approves the deal today – not likely – there’s diminishing hope that California’s review of the merger will wrap up before August. And the possibility of a mid-September decision is growing.
There are three structural reasons for the delay. First, the CPUC only has one voting meeting scheduled for July, on the 11th, and there’s a four week gap between the commission’s last August meeting and its first one in September. Second, there’s a statutory minimum 30-day public review period between the publication of a draft decision and a vote by commissioners.
To make the 11 July 2019 meeting agenda, the CPUC administrative law judge managing the case, Karl Bemesderfer, would have to publish his proposed decision by next Tuesday. He could do that, but the third structural problem – the commission’s slow moving, adversarial and quasi-judicial decision making process – argues against it.
Two weeks ago, T-Mobile filed a motion to “advise” the CPUC about the deal it reached with the Federal Communications Commission. That set a two-week clock ticking for opponents to weigh in. Yesterday, the CPUC’s public advocates office (PAO) argued that commission decisions have to based on what’s in the official record, and not on news bulletins from Washington, D.C. The PAO’s response pointed out that T-Mobile took exactly that position earlier this year…
Joint Applicants’ [i.e. T-Mobile’s and Sprint’s] request to “advise” the Commission of their FCC filings is essentially the same as DISH Network’s January 29, 2019, Motion to Take Official Notice of Supplemental Authority, which requested that DISH’s FCC filings be considered in this proceeding. In response to DISH’s Motion, Joint Applicants argued that it “would cause prejudice to the Joint Applicants by enabling DISH to belatedly introduce arguments long after the relevant deadlines have passed, to which the Joint Applicants could have responded had the arguments been timely made.” On February 5, 2019, [Bemesderfer] denied DISH’s request, stating “…introducing what amounts to a legal pleading at this [point] is simply prejudicial to the applicants and so that motion is denied.” The arguments regarding prejudice and timeliness are equally applicable now.
The U.S. Justice Department’s antitrust division staff has recommended the agency block T-Mobile US Inc’s $26 billion acquisition of smaller rival Sprint Corp, according to two sources familiar with the matter…
The final decision on whether to allow two of the four nationwide wireless carriers to merge now lies with political appointees at the department, headed by antitrust division chief Makan Delrahim…
One critic of the deal, Gene Kimmelman, president of Public Knowledge, the nonprofit public interest group, said top brass in the Justice Department’s antitrust division do not generally overrule the staff but they occasionally do.
“I’d be extremely surprised if the front office overruled this,” added Kimmelman, a veteran of the Obama Justice Department.
The federal justice department’s opinion will matter in California, too. The substantive objection to the deal made during the ongoing California Public Utilities Commission review is, likewise, that it’s anti-competitive. The economic analysis done by the CPUC’s public advocates office reaches that conclusion using the DOJ’s methodology. T-Mobile’s rebuttal relies on novel techniques developed by the “world renowned” economists it hired to make its case. Assuming the Reuters report is correct, they did not impress federal anti-trust enforcers.
A final decision by the DOJ is expected to come within a month or so. The CPUC’s review will probably run longer, for a lot of reasons, including that it might not be a bad idea to wait until a decision is made at the federal level. That could mean a CPUC vote won’t come until August, at the earliest.
T-Mobile threw a hail mary pass to Federal Communications Commission chair Ajit Pai yesterday, hoping to move its proposed merger with Sprint over the regulatory approval line. Pai caught it and started running, but could be tackled short of the end zone by the justice department. And the California Public Utilities Commission’s review is still a whole ’nother ball game.
Yesterday morning began with Pai announcing that new promises from T-Mobile about divesting a down market subsidiary – Boost Mobile – and expanding rural wireless coverage led him to “believe that this transaction is in the public interest and intend to recommend to my colleagues that the FCC approve it”. One colleague, commissioner Brendan Carr, who sometimes seems to thinks he’s still a private attorney representing mobile companies, joined in, saying the deal will let the U.S. “notch another win in the global race to 5G”.
Unfortunately for T-Mobile and its republican-appointed cheering section at the FCC, not everyone agrees. Commissioner Jessica Rosenworcel, a democrat appointee, tweeted her skepticism: “we’ve seen this kind of consolidation in airlines and with drug companies. It hasn’t worked out well for consumers…I have serious doubts”.
The Justice Department is leaning against approving T-Mobile US Inc.’s proposed takeover of Sprint Corp., according to a person familiar with the review, even after the companies won the backing of the chairman of the Federal Communications Commission.
The remedies proposed by the wireless carriers earlier Monday don’t go far enough to resolve the department’s concerns that the deal risks harming competition, said the person, who asked not to be named because the investigation is confidential.
The California Public Utilities Commission is also reviewing the merger. T-Mobile wasted no time yesterday telling the administrative law judge (ALJ) managing the case about the FCC’s epiphany. The immediate effect is to add another layer of complexity and, perhaps, more time to an already complicated and lengthy case. Californian opponents of the merger get time to make an argument against accepting the FCC’s T-Mobile’s manifesto or to ask for a procedural detour to delve into it. Enough time to all but guarantee that a draft decision won’t be published in time to make it onto the agenda for commission’s last meeting in June.
T-Mobile’s closing case for the California Public Utilities Commission review of its merger with Sprint boils down to trust us, it’ll be glorious. Opponents, led by the CPUC’s Public Advocates Office (PAO), say you gotta be kidding. T-Mobile (and Sprint and the California Emerging Technology Fund, but T-Mobile is the lead dog in that pack) filed final arguments on Friday, saying the CPUC should approve the merger. The PAO, the Communications Workers of America (CWA), TURN and the Greenlining Institute urged commissioners to deny it, because consumer prices will rise and rural communities will be left out, among other ills. Links to the “reply briefs” are below.
The PAO argues that any benefits to the public – as opposed to rents extracted by special interest groups – “will occur without the merger, if at all”. Its rebuttal dismisses T-Mobile’s promises as “vague” and “not specific, measurable, verifiable, and enforceable”.
Just so. In Friday’s filing, T-Mobile included a long list of what it calls “commitments”, but what a careful reading shows to be mostly meaningless fluff.
For example, it promises to offer lifeline service “indefinitely”, which sounds like “forever” but could also mean “for an unspecified period of time”. High sounding goals are guarded by weasel words like “strive to” and “good faith efforts”. Any firm promises – for example pricing, wholesale terms and data caps – are limited to no more than three years, which is something like the minimum amount of time required to fully integrate the two companies.
The grand network buildout T-Mobile first promised will be limited to “90% of the cell site locations” identified in the plan it submitted earlier as evidence of its good intentions. As CWA points out, the original pledge was for a 99% build out, but the California Emerging Technology Fund helpfully negotiated it down to 90%.
And 90% of cell site locations is not the same as 90% of California’s land area. Given the far higher density of cell sites in cities and suburbs, it’s not hard to guess where the unfortunate 10% will be. Roughly 95% of California’s population lives on 5% of the land and cell site deployment correlates with population density. So eliminating the least profitable 10% of cell sites from T-Mobile’s aspirational powerpoint presentation could leave the majority of rural Californians in the dark.
By omission, T-Mobile’s brief confirms (if confirmation was needed) that it won’t offer the full benefits of 5G service to rural Californians. It talks a lot about using low and mid-band spectrum in rural communities, but not the high capacity, high frequency millimeter wave bands or high density, low latency deployments that will be used to improve service in urban areas where affluent customers are thickest.
It also tries to rebut a key point made earlier by an economist working for the PAO, Lee Selwyn, who said that T-Mobile’s promises of a rural 5G renaissance were bogus because even its mid-band coverage claims were based on unrealistic assumptions about how many new cell sites would be built. T-Mobile offered a quibbling response about coverage patterns, but didn’t address the core economic question of whether there’s enough revenue potential in, say, Kings County to justify building a significant number of new towers or small cell facilities.
Selwyn also leaned on conventional anti-trust analysis to show that reducing the mobile market from four carriers to three will reduce competition and result in increased prices. T-Mobile hit back at that conclusion by touting the supposedly superior (and certainly more creative) economic model produced by three economists it hired.
Who to believe? If you think the new, merged company would, as T-Mobile plausibly claims, have lower marginal – e.g. operating – costs, then the question becomes whether those savings would be used to lower consumer prices or increase corporate profits. The answer depends in large part on whether T-Mobile, AT&T and Verizon reach a comfortable pricing equilibrium instead of fighting a bloody price slashing war. Profitable equilibriums are even easier to find in a three player oligopoly than in a more heated four player market. As the PAO’s rebuttal puts it, “AT&T and Verizon already have substantially higher prices” than T-Mobile. That’s despite having lower marginal costs. Without Sprint nipping at its heels, T-Mobile can join that club too.
T-Mobile’s rebuttal also goes on at great length about its plan to offer in-home service via its 5G network, but doesn’t explain where the necessary capacity will come from, or why it would want to sell 5G bandwidth at residential prices when there’s more money to be made filling the booming demand for mobile data. The fundamental business case for 5G deployment is based on mobile revenue streams. In-home data consumption is a couple orders of magnitude greater than mobile usage, so it’s hard to see how residential service will be a mainstream offering, rather than a tactic to offload temporarily surplus capacity. Wall Street analysts are not buying residential 5G pitches, not least because what’s known publicly about Verizon’s Sacramento experiment is not encouraging.
Some of T-Mobile’s rebuttal focuses on legal issues, particularly its claim that the CPUC has no business reviewing a merger between two mobile carriers because, among other things, it says that’s the Federal Communications Commission’s job. T-Mobile’s objections will set the stage for court challenges to any adverse decision the CPUC might reach, which could kill any conditions or restrictions the CPUC might impose.
There are a few procedural loose ends to tie up, but the substantive evidence and lawyerly pleadings are in the record. The next step is for the CPUC administrative law judge managing the review, Karl Bemesderfer, to draft a proposed decision for the commission to consider. If he does that in the next couple of weeks, commissioners could vote on it as soon as 27 June 2019. It’s a complicated case and there are other potential bumps in the road, though. T-Mobile and Sprint’s agreement to extend their self imposed deadline to the end of July was a wise move.
“Reply briefs” regarding T-Mobile’s acquisition of Sprint, filed with the CPUC on 10 May 2019:
(Technically, two CPUC reviews are underway. One concerns Sprint’s wireline operations in California, and the other involves mobile services. The two reviews were combined into a single proceeding, but T-Mobile is trying to split them up again. The wireline transfer is relatively uncontroversial, but is squarely within the CPUC’s jurisdiction; the mobile merger is hotly contested, but the CPUC’s authority is less certain. It would benefit T-Mobile if the two issues were handled separately).
Instead, CETF and T-Mobile (and technically Sprint, but it’s T-Mobile that’s running the show) negotiated their deal and then submitted it to Bemesderfer, along with a request from CETF to be allowed to change sides in the case and “enthusiastically and wholeheartedly support” the merger. He said that’s how it’s been done at times in the past, so the agreement can be used to support T-Mobile’s push for CPUC approval of the Sprint merger, but that’s all…
However, all parties should be aware that granting the Motion merely permits CETF and Joint Applicants [T-Mobile and Sprint] to enter their MOU into the record of this proceeding and changes the litigation position of CETF from opposing the Sprint-T-Mobile merger to supporting it. Granting the motion does not pre-judge the question of whether the merger is in the public interest though it adds weight to the argument of Joint Applicants for that conclusion.
Bemesderfer is yet to rule on a flurry of motions filed in the past week. TURN and Greenlining either want the CETF deal excluded from consideration, or be given more time to offer a rebuttal. No decision yet on that request, but Bemesderfer’s latest ruling might be read as an indication of where it’s heading. Also pending are a motion by the PAO to exclude T-Mobile’s not very detailed offer of 1,000 new jobs at a Central Valley call center if the merger is completed, and another request by Sprint and T-Mobile for the CPUC’s immediate approval.
At this point, the only immediate action to expect is another weekend with plenty to read – rebuttal arguments from all sides are due later today. Assuming all goes to plan, I’ll post an update on that on Monday.