The Communications Workers of America (CWA), which is the largest telecoms union in California, asked to join the California Public Utilities Commission’s inquiry into T-Mobile’s proposed takeover of Sprint yesterday. In its “motion for party status”, CWA said it represents wireless industry workers at AT&T and “as members of T-Mobile Workers United, an organisation of T-Mobile and MetroPCS employees”.
Many could lose their jobs, according to the union’s motion…
The T-Mobile/Sprint merger will have a significant impact on CWA members, both as workers in the industry and as consumers of wireless services. CWA’s research shows that the merger will result in the loss of 3,185 retail jobs in California due to store closures and consolidation. In addition, the proposed transaction could increase concentration in the wireless industry labor market with negative impact on industry-wide wages…
CWA District 9 intends to actively participate in this proceeding.
It’ll be up to the CPUC administrative law judge handling the case to decide whether CWA can jump into the proceeding at this point, but such requests are typically granted. The commissioner in charge, Clifford Rechtschaffen, didn’t call out employment issues as a particular focus of the inquiry in the “scoping memo” he issued a couple of weeks ago, but he also stated that the list was “non-exhaustive”.
Reviewing labor implications would be completely consistent with past practice and California’s public utility law, which directs that utility mergers must “be fair and reasonable to affected public utility employees, including both union and nonunion employees”. It’s not 100% clear whether the T-Mobile Sprint transaction is big enough to require that kind of review, but there’s little doubt the CPUC can choose to do so.
Two other groups that are protesting the merger – TURN and the Greenlining Institute – also filed paperwork, saying they expect to ask to be compensated by the companies for their efforts, as California law also allows. They estimate that they’ll run up a combined bill of $152,000.
It seems someone jumped the gun at the California Public Utilities Commission, and prematurely sent out a ruling defining the scope of California’s regulatory review of T-Mobile’s proposed purchase of Sprint. On Thursday, the commissioner in charge of the inquiry, Clifford Rechtschaffen, issued an amended version of the “scoping memo” he released the week before, saying the first one “was mailed in error”.
There are several wordsmithing changes in the updated version, and a few that are more substantive. One big change is a broad, up front statement making it clear that there are no particular limits to what the review will cover…
The scope of this proceeding includes all issues that are relevant to evaluating the proposed merger’s impacts on California consumers and determining whether any conditions should be placed upon the merged entity.
Additions to the specific, but “non-exhaustive” list of items that will be covered include consideration of potential new services the combined company might offer and – for both new and existing services – the impact on communities and regions, as well as California a whole.
The net result is that the focus (if you want to call it that) of Rechtschaffen’s investigation is even wider than before. It won’t be limited to a few specific and largely technical issues, as T-Mobile and Sprint had hoped.
The original schedule called for a final decision by next June. The core of the new schedule tracks with the original one, but the beginning of public hearings over the next two or three months, and the final wrap up next spring (or maybe summer?) are more indeterminate. Instead of the CPUC voting on a final decision in “June 2019”, the schedule calls for that to happen in “2nd Quarter 2019”. Given the way decisions are drafted, reviewed and then put on the commission’s agenda, June is still a reasonable bet. But it might happen sooner. Or later – CPUC timelines have been known to slip.
The proposed purchase of Sprint by T-Mobile will get a thorough workover by the California Public Utilities Commission, and a final decision on whether or not to allow it won’t come until next summer. The commissioner running the review, Clifford Rechtschaffen, laid out the issues that he’ll investigate in a ruling on Friday.
Rechtschaffen had to decide how wide ranging his inquiry will be. Sprint and T-Mobile wanted it to be very narrow, and focus on two particular issues: could a relatively small Sprint subsidiary that does some wireline business in California be sold to T-Mobile, and could T-Mobile take over Sprint’s California mobile carrier registration. Technically, that’s just a simple notice that it has a federal license, but transferring it requires CPUC sign-off. As they tried to argue, both were matters of minor paperwork. These aren’t the droids you’re looking for, move along, move along.
Protests came from the usual suspects. TURN (aka The Utility Reform Network), the Greenlining Institute and Media Alliance – non-profit advocacy groups that rely heavily on “intervenor compensation” handed out by the CPUC – objected. So did the CPUC’s internal advocacy unit, the office of ratepayer advocates. They wanted the commission to review the whole merger, and all its potential impacts on Californians.
Rechtschaffen resisted the Jedi mind trick and sided with the protestors. He listed fourteen questions that have to be answered before the CPUC makes a final decision. The timeline he laid out says that will happen in June 2019.
The topics of those questions range from the merger’s competitive impact on mobile service and the fiber backhaul markets in California, whether or not innovation will be helped or harmed, and what, exactly, are the wonderful “efficiencies” that Sprint and T-Mobile promise will come our way if they’re allowed to combine. He’ll also consider the need for and the nature of “conditions or mitigation measures to prevent significant adverse consequences” that the CPUC might impose.
The public will be involved. Rechtschaffen plans to hold a series of public hearings in November and December, which will presumably be held in several locations around California. After that, both sides will file position papers, present evidence at a formal hearing, and submit their arguments and counter-arguments. Once that’s done – by mid-March – it’ll take about three months to produce, review and vote on a final decision. That’s the planned schedule, anyway. Much can happen that might speed up or, particularly, slow down the proceeding.
T-Mobile’s plan to buy its smaller competitor, Sprint, faces formal opposition in California. The California Public Utilities Commission’s office of ratepayer advocates and a pair of consumer advocacy groups filed formal protests to the merger, claiming, among other things, that it runs afoul of anti-trust principles and would result in a significantly less competitive mobile telecoms market.
The deal has to be approved by the CPUC, but the scope of that review is limited. So far. T-Mobile needs the CPUC’s okay to take over Sprint’s relatively small wireline business, and to put its name on Sprint’s California wireless registration. The former poses broad questions for a tiny aspect of the merger; the latter involves a narrow look at the larger business.
The protestors want the CPUC to combine it all into a single case and make it a comprehensive enquiry that considers the total impact of reducing the number of mobile broadband companies in California from four to three.
As the joint filing by the Utility Reform Netowrk and the Greenlining Institute put it…
The Wireless Application makes the rather bold claim that the elimination of Sprint as a competitor will nevertheless promote competition. However, when discussing the combined company’s position as a competitor, Applicants focus on the combined company’s ability to compete with “premium” brands like Verizon and AT&T, as well as cable companies’ voice and data plans. The Wireless Application is silent as to the combined company’s plans to target more value conscious customers. Joint Consumers are concerned that the proposed transaction would eliminate Sprint and T-Mobile as companies with affordable service offerings and reasonably priced equipment, and, instead, create a “third AT&T/Verizon” that lacks the incentive to serve lower-income or low-margin customers. In fact, the Federal Trade Commission and Department of Justices’ Horizontal Merger Guidelines expressly acknowledge that a combined company may have the incentive to eliminate lower cost offerings in order to drive customers to more expensive (and more profitable) offerings.
It is bold indeed to say that reducing the number of competitors makes a market more competitive. Maybe it’s possible to prove that it’s true. I doubt it, but the CPUC should give T-Mobile and Sprint a fair shot at making that case. If they can’t do it with hard evidence – as opposed to the rhetoric they’ve relied on so far – then the CPUC should block the merger.
T-Mobile, the third largest U.S. mobile carrier, needs the California Public Utilities Commission’s blessing to buy Sprint, the fourth largest. Sorta.
The Federal Communications Commission has jurisdiction over mobile carriers and is doing the heavy lifting in the regulatory review of the transaction. But Sprint has a subsidiary – Sprint Communications Company, or “Sprint Wireline” as it’s referred to – that sells services to business customers in California. As a result, the company has a certificate of public convenience and necessity (CPCN) granted by the CPUC, and needs its approval to transfer ownership to T-Mobile.
In the joint application submitted by the two companies, Sprint Wireline’s business is described as limited “exclusively to enterprise and carrier customers”. It’s no big deal, they claim…
This transfer will not have any impact on the provision of [competitive telecoms] service or competition in that market. T-Mobile does not currently provide such services and neither it, nor any of its California operating subsidiaries, are certificated [competitive telecoms service] providers. Moreover, because this is a parent-level only transaction, with no change in day-to-day operations of Sprint Wireline, the Commission will retain exactly the same regulatory authority over Sprint Wireline that the Commission possessed immediately prior to the Transaction. In addition, the Transaction is transparent to Sprint Wireline’s customers as Sprint Wireline will continue to honor its existing contractual obligations.
The key question is whether the CPUC looks at all the business that Sprint does in California – including mobile – or focuses on the much smaller wireline portion. Going large means closer scrutiny and, perhaps, conditions attached to the sale. A narrow focus on just the wireline business would likely be much less fraught.
In the past, the CPUC has either sidestepped the question, as it did with CenturyLink’s purchase of Level 3 Communications, or based its review on the big picture, and the tougher standards that entails, as it did with Charter Communications’ acquisition of Time Warner Cable’s Californian systems.
The T-Mobile/Sprint deal is different, because there’s a clearer regulatory distinction between wireline and mobile companies, and the certifications and licenses they’re required to have. The CPUC has to decide whether it’s a big enough difference to justify waving the deal through.
The $26.5 billion dollar proposed purchase of Sprint by T-Mobile can’t go forward unless it’s given a pass by anti-trust watchdogs. As a practical matter, that means the federal justice department’s anti-trust unit sits on its hands and doesn’t challenge it in court, and the Federal Communications Commission signs off on the license transfers involved.
In theory, the California attorney general could jump in. In practice, that’s unlikely. So let’s set it aside for now. Unless there’s some obscure wireline telephone asset involved – anything is possible, but I don’t think so – the California Public Utilities Commission isn’t in the game either.
It’s down to the feds. And the likeliest source of opposition is the justice department’s anti-trust unit. It took on AT&T’s acquisition of Time Warner, although its lawsuit appears to be on the ropes.
The question is whether combining T-Mobile and Sprint into one company makes the U.S. mobile telecoms market significantly less competitive. Right now, they are two of the four mobile carriers that are worth worrying about (the other two are AT&T and Verizon, but you knew that).
T-Mobile has 17% of the U.S. mobile broadband market; Sprint has 13%. Both are in the habit of making significant market gambles – unlimited data plans, for example – that the big boys, with roughly a third of the U.S. market each, are forced to match. That’s a significant benefit to consumers, even if it doesn’t warm shareholders’ hearts.
When you’re in imminent danger of falling off a market share cliff at any moment, you assess risk differently than someone with a comfortable third of the pie. Which is what the new T-Mobile would have. Allowing it that level of comfort would decrease the competitive pain of its new peers, as well as consumer’s competitive market pleasure. We’ll see if the federal justice department arrives at the same answer.
Update: the deal is done.
The competitive mobile broadband market might not be as red in tooth and claw in the near future. According to several media outlets, T-Mobile and Sprint, the number three and four mobile carriers in the U.S., are on the verge of announcing a merger. It’s the second time they’ve gone down this path. According to CNBC, this time it’s because the competition is too much for the smaller Sprint…
Talks most recently broke off late last year after SoftBank CEO Masayoshi Son decided he didn’t want to lose control of a combined company. Deutsche Telekom will own more than 40 percent of the new company, with SoftBank’s ownership just below 30 percent.
Several things changed over the last few months that led Son to change his mind, including greater synergies from lower corporate taxes, an increased understanding of how much 5G deployment will cost Sprint, and a rapidly changing competitive wireless landscape that now includes cable providers.
The big question – besides will they do it – is whether the federal government’s antitrust watchdogs will allow it. They scuppered AT&T’s 2011 attempt to buy T-Mobile because they deemed it anticompetitive. Duh.
This deal is more complicated. Arguably, a combined T-Mobile and Sprint would be a more formidable opponent for Verizon and AT&T, number one and two in market share with 35% and 33% respectively. Combined, T-Mobile and Sprint would have 30%, and be worth $26 billion.
On the other hand, it was the unlimited rate plans offered by the two smaller companies that forced the big boys to follow suit last year. Whether the merged company, with a market nearly even with the leader, would share have the same manic drive to catch up or would simply relax into a comfortable oligopoly is the key antitrust issue.
The marriage announcement, if it comes, is expected later today.
There’s a lot of sniffing around telecoms companies in these dog days of summer. Softbank, Japanese tech investment giant which owns Sprint, is reported to be sniffing around T-Mobile, with a merger in mind. If it happened – if regulators allow it to happen – it would take the U.S. mobile telecom sector down to three companies, from the current four.
Charter Communications is getting a lot of attention, too. Softbank first tried to engineer a merger, and when that failed began talking about buying the company outright. But if it’s really in the hunt for T-Mobile, a second mega-deal with Charter becomes unlikely.
But it has company. According to a story on CNBC, Altice is looking at adding Charter to its U.S. kennel, which so far includes Suddenlink and Cablevision. It’s not much of a powerhouse in the U.S., yet, but the France-based company is a major player in Europe. If it wants to buy Charter, it has to entice controlling owner Liberty Media and its big dog, John Malone. The question, according to CNBC, is whether Altice’s track record of boosting the value of acquired cable companies by slashing operating expenses will do the trick…
In its short time operating in the U.S. market, Altice has shown a unique ability to cut costs and generate substantially higher margins, before taxes and other costs, than predecessor managements. But Liberty is still wary of taking Altice paper in the belief that it is too early to tell whether those gains are sustainable…
Charter, with $60 billion in debt and an expected purchase price that could reach or exceed $500 a share would represent an enterprise value of almost $200 billion.
Altice’s U.S. holdings may be small enough to avoid triggering a fatal anti-trust response from the federal justice department. In past times, a T-Mobile-Sprint combination probably would set off alarm bells – similar mergers did – but things might be different now. Conventional wisdom is that the Trump administration wouldn’t be so worried about increased telecoms market concentration, concerns about its treatment of the AT&T – Time Warner deal notwithstanding. We might know soon if that’s a good assumption.
T-Mobile is the big winner, or at least the big spender, in the Federal Communication Commission’s $20 billion incentive auction, walking away with more than half the 600 MHz band licenses up for grabs – 1,525 licenses, 55% of the total. Second place went to DISH, which paid $6.2 billion for 486 licenses, 18% of the total.
Who came in third depends on how you’re figuring it. Comcast bid the third most money – $1.7 billion – but ended up with only 73 licenses, a mere 3%. U.S. Cellular – the distant number five mobile carrier in the U.S. – was number three in the license race, paying $329 million for 188 licenses (7% of the total, but not prime real estate).
AT&T plunked down nearly a gigabuck – $910 million – for 23 licenses, a 1% share. Verizon, on the other hand, was shut out, winning zero licenses but, on the other hand, paying zero dollars.
Sprint didn’t participate, or at least not under its own flag. There will certainly be further wheeling and dealing. Many of the winning bidders appear to be have transaction motives rather than action plans.
DISH is top of that list. Chairman Charlie Ergen made the leap from millionaire to billionaire after placing a low cost, high return bet on direct broadband satellite slots back in the 80s, and has been playing the spectrum sweepstakes ever since. He’ll light up frequencies himself when there’s an open field – as there was with DBS once it got going in 90s – but otherwise manages his licenses as an investment portfolio.
Don’t expect anything revolutionary from anyone in the near term. It’ll take a few years to move TV stations off of the frequencies they’re giving up in exchange for $10 billion. And which they, or at least the original license holders, paid exactly zilch to acquire.
It’s like I said, their view never changes.
There’s a war of words between T-Mobile and its larger competitors, AT&T and Verizon, over using advanced mobile technologies – 5G is the undefined buzz word – as a DSL replacement to provide fixed Internet service to homes and businesses. Neville Ray, T-Mobile’s chief technology officer, says 2017 isn’t the year to get excited about 5G, particularly AT&T’s and Verizon’s version of it…
No one’s more excited about this brilliant technology than I am. But it will take several more years for 5G to be meaningful for mobile. The carriers’ current vision for 5G is mind-numbingly limited. 5G’s potential is so much larger than replacing in-home broadband and IoT. But they can’t see beyond their own wallets. AT&T wants to “connect your world” – including your bank account – to AT&T. Verizon’s grand vision is that you Netflix at home with wireless Verizon broadband. How is that game changing?
Of course, with their copper networks, AT&T and Verizon have a different business model and motivation than wireless-only T-Mobile. According to a story in Fierce Wireless by Mike Dano, the two legacy carriers are moving ahead with or without a firm 5G spec…
Both AT&T and Verizon are moving forward with plans to at least test and potentially commercially deploy fixed wireless services that would leverage initial 5G technologies (industry executives expect the 3GPP’s [ the 5G standards body] to finalize the initial standard for fixed 5G in the coming months). Verizon, for example, has already installed 5G equipment for fixed wireless services in more than 10 U.S. cities. However…Verizon may have to upgrade its physical equipment at its sites in the 10 cities in order to ensure that its services work with the 3GPP’s forthcoming 5G standard.
AT&T also has fixed wireless tests in the works, including its so called wireless local loop technology that it plans to use as a replacement for wireline service in rural California.