U.S. Authorities Clear T-Mobile/Sprint Merger Despite China Links

Sprint T Mobile New Logos AH Oct 24 2018

A number of United States regulators cleared the proposed merger of T-Mobile and Sprint, the two wireless carriers confirmed. The telecom giants won official approval from the Committee on Foreign Investment in the United States and the so-called "Team Telecom" – the Department of Defense, Department of Justice, and the Department of Homeland security. The duo promptly notified the Federal Communications Commission of the development, requesting the agency's consolidation review process proceeds as quickly as possible. The FCC put the review deadline on hold several months back following an action deferment request from Team Telecom which has now been withdrawn.

Four down, two to go

The first wave of regulatory approvals brings T-Mobile and Sprint much closer to their ambition to combine their operations. The only two remaining government hurdles they have to clear are reviews from the Department of Justice and the FCC, neither of which have yet clarified how close they are to approving the tie-up. The DOJ is a particularly large unknown for the carriers seeing how the current administration exhibited some largely unprecedented stances on big-business M&A activity ever since taking the reins of the country early last year. The most obvious example of that break from the norm is the DOJ's legal battle with AT&T over its acquisition of former Time Warner, now WarnerMedia. Despite being a vertical purchase that didn't directly eliminate any competition from the market, the $85.6 billion deal was met with an antitrust lawsuit from the DOJ, though the effort was promptly dismissed in court. Regardless, by formally objecting to an acquisition type that historically saw little opposition from Washington, the Trump administration signaled it isn't burdened by conventions when it comes to interpreting competition law.


That may still spell good news for T-Mobile and Sprint given how the all-stock swap deal valued at around $26.5 billion they're proposing would have likely been shot down by previous administrations due to the fact that it further streamlines a market that already lacks meaningful competition in many parts of the U.S. That's particularly true for the prepaid segment, though T-Mobile and Sprint already vowed to keep their existing prepaid brands separate and continue their efforts to keep such plans versatile and accessible. However, none of those promises are legally binding less the DOJ or FCC insist on formally labeling them as concessions in their ongoing talks with the two network operators.

No national security complaints – kind of

The green light given by Team Telecom confirms stateside regulators have no complaints about the proposed merger in regards to national security issues, as well as subjects related to public safety and law enforcement. The development comes shortly after numerous industry watchers raised concerns about the deal due to Sprint's parent SoftBank, i.e. its ties to Chinese telecom giant Huawei that's been repeatedly labeled as a national security threat by the American intelligence community. The Shenzhen-based company has been one of the pioneers in the emerging field of fifth-generation mobile communications and while it repeatedly attempted entering the stateside wireless market on a large scale, it has been essentially blocked in its efforts to do so as the U.S. administration repeatedly refused to rely on Chinese technologies for its critical infrastructure, citing spying risks and related concerns.

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A number of conservative analysts recently pointed to a possibility that T-Mobile and Sprint stay buying Huawei gear after combining in order to save on 5G rollout costs, unburdened by Washington's stance on the Chinese firm. In response to those warnings, Deutsche Telekom and SoftBank stopped using Huawei-made technologies several days back, sacrificing their relationship with the Chinese telecom juggernaut as a concession to the federal government so that the review of their subsidiaries' consolidation attempt may continue. Huawei has yet to comment on the development in any capacity, though its overall stance on the matter has already been outlined on countless occasions, with the conglomerate dismissing all security concerns surrounding its equipment as baseless and attributing them to the U.S. administration's insistence on skewing the wireless playing field in favor of American companies.

International tensions rising between Gs 

With the world still being "between two Gs" as the fifth generation of mobile networks is only now emerging in the form of rollout-ready standards, this period is Huawei's one and only chance to ensure its wireless business continues growing. Even as the company managed to score some two dozen 5G deployment contracts around the world, international pressure from the U.S. government is now starting to have an effect on its allies; Australia already indirectly banned Huawei-made wireless equipment, with South Korea and Japan being expected to follow suit in the coming weeks. Deutsche Telekom's decision to drop its gear is also a massive blow to the company seeing how the German telecom giant is largely expected to lead the next wireless revolution on the Old Continent.


At the same time, Washington appears to be increasing its scrutiny of Huawei in other departments, as evidenced by the early December arrest of the company's Chief Financial Officer Meng Wanzhou in Vancouver which was requested by the stateside Department of Justice, sparking a diplomatic incident and further escalating political tensions between the U.S. and China. The DOJ is suspecting the 46-year-old executive and daughter of Huawei founder Ren Zhengfei of personally setting up a secretive Hong Kong satellite and defrauding several banks with the goal of circumventing the Commerce Department's trade sanctions imposed against Iran. If the full extent of the allegations is proven in the court of law, Ms. Meng could be facing up to 30 years in federal prison.

Before anything of the sort happens, the DOJ first needs to convince Ottawa to extradite the veteran executive who's already out on bail, albeit placed under a limited house arrest after being deemed a flight risk by a Vancouver court. The American prosecutors are expected to formally request her extradition by the end of the month. In the meantime, Beijing continues accusing Canada of acting as a U.S. puppet, having repeatedly requested that Huawei's executive is released immediately and unconditionally.