CFIUS or the Committee on Foreign Investment in the United States, is expected to approve the T-Mobile and Sprint merger deal next week. This is according to a report out of Reuters who stated that this deal is being approved after their parent companies agreed to curb use of Huawei's networking gear on their networks in Germany and Japan. T-Mobile's parent-company, Deutsche Telekom in Germany has been using Huawei's gear on its network for quite some time, and so has Sprint's parent-company, SoftBank. The US government has been pressuring Deutsche Telekom more than SoftBank, to stop using Huawei's equipment on its network, over concerns that the company is controlled by the Chinese government and that equipment could contain "back doors". This is of course, something Huawei has denied for many years, and will continue to deny.
This is all part of CFIUS' review on the potential merger, which was announced back in April of this year. T-Mobile is spending $26 billion to buy its rival, Sprint, and combine to be the third largest carrier in the US, and to better compete with AT&T and Verizon. Normally, CFIUS wouldn't be involved, since they are in charge of foreign investments in the US, but because both companies are owned by foreign entities, CFIUS does have jurisdiction here. In the proposed deal, Deutsche Telekom would be the majority owner of the company. And the US government is using this as a way to force Deutsche Telekom to stop using Huawei's networking equipment on its networks in Europe. If this sounds like a bit of a reach by CFIUS and the US government, that is because it is. But it's a concession that Deutsche Telekom will need to make if they want to combine T-Mobile with Sprint and become a bigger competitor in the US wireless market.
Deutsche Telekom did say on Friday that it was reviewing vendor plans in its European markets, after all of the fuss over Huawei's networking equipment. The company did not say which vendor it will use, but it is likely to be Nokia, Ericsson or Samsung. Speaking of which, Sprint's parent-company, SoftBank said that it is planning to replace all of its Huawei 4G network equipment with Nokia and Ericsson equipment. Both of which are larger network equipment suppliers than Huawei – and also are responsible for the US network, especially with 5G coming.
CFIUS is just one part of the review process for this merger, The FCC and Department of Justice still need to take a look at this merger and decide whether it wants to attempt to block it or not. The Justice Department may not attempt to block this merger, after how bad it looked in its trial against AT&T and Time Warner where it tried to block that merger. But the FCC could argue that three carriers is not enough for competition in the US. However, that was the FCC under President Obama's leadership, under President Trump, things could be a bit different.
Background: Sprint and T-Mobile's merger was announced in April, but it actually started quite a few years ago. SoftBank purchased a majority share of Sprint in late 2012. After it purchased about 70-percent of the, then, third-largest carrier, SoftBank wanted to combine it with T-Mobile. But that wasn't going to happen under the Obama Administration. The FCC and other regulators were adamant that it wanted at least four national carriers, to keep things competitive. But that made little sense, seeing as AT&T and Verizon were both more than double the size of Sprint, and at the time, nearly triple the size of T-Mobile. After Obama left office, Sprint and SoftBank started talking with T-Mobile and Deutsche Telekom once again about merging, but this time it was the other way around. This is because T-Mobile continued to grow – adding over a million customers every single quarter – while Sprint was cutting costs and slowly turning things around.
Now with 5G on the horizon, T-Mobile says that it needs Sprint. This is partly due to all of the spectrum that Sprint has, including that coveted 2.5GHz spectrum which is going to do wonders with 5G speeds. But T-Mobile also needs Sprint, so that it can stand up to the "duopoly" as T-Mobile's CEO says, of AT&T and Verizon. This is because they are twice the size of both T-Mobile and Sprint and even combined, it would still be the third largest carrier in the US. Both companies really need this deal, but Sprint moreso than T-Mobile. And if Sprint doesn't get this deal, SoftBank is either going to continue hemorrhaging money, or need to put Sprint out of its misery and we'll still be down to three carriers in the US.
Impact: If this report is indeed true, and seeing as it is coming from Reuters, it is likely true, this is going to have a worldwide impact for Huawei. It is already having a hard time with the US government and trying to enter the US and get more of a foothold here. But between Trump waging that Trade War with China, and many believing that Huawei is part owned by the Chinese government (there is no proof of that), it's making it pretty tough for Huawei. The reasoning behind Huawei getting this cold shoulder is because the US believes that Huawei has some back doors in its products, that send data to Chinese servers, for cyber espionage and such. But there have been numerous investigations into those allegations, and nothing came out of those investigations. In fact, there was one that lasted many years and found absolutely no proof. Which makes this all a bit weirder. For most of 2018, the US was waging war on Huawei's mobile division, basically kicking them out of the US. Now they are focusing on its other businesses, including its networking division which is one of its most lucrative divisions. And that is because wireless networks all over the world need this equipment, but now with many countries opting to stop using Huawei's gear, it's making it tougher on the company.