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Sprint-T-Mobile Merger Proposition Weakens as FCC Addresses Problem

April 18, 2014 | About:

The roadblocks in the way of Sprint (NYSE:S) and T-Mobile (NASDAQ:TMUS) merger seem endless. The merger proposal of the third and fourth largest U.S. carriers has been one of the hot wireless headlines from quite some time. Whether the merger would materialize or not, remains a big question.

We have seen it in the past when in 2011 the Federal Commissions Communication and the Department of Justice turned down AT&T’s proposal of acquiring T-Mobile for $39 billion. This was done on the grounds that the merger between two national carriers would concentrate too much power in the hands of the new entity and defeat the spirit of competition.

So Would History Repeat Itself?

The regulators do not in favor of mergers that involve two big players. But Sprint has several justified reasons to support its proposal. One of them is the carrier’s concern about its participation in the upcoming incentive auction, which is slated for mid next year. This is the biggest auction since the one that happened in 2008, through which the FCC amassed $19 billion, 90% of which came from Verizon (NYSE:VZ) and AT&T (NYSE:T). This means that these two companies got hold of most of the spectrum auction and were the biggest beneficiaries of the event.

This is exactly what T-Mobile and Sprint fear. Sprint brought up the issue that both Verizon and AT&T would be in a better position at the spectrum auction because of their stronger financial cushioning.

But FCC is trying to address this issue. This clearly indicates that the regulator is working to solve such concerns to avoid the Sprint-T-Mobile merger matter. Though both Sprint’s and Softbank’s CEO tried to convince the regulators by promoting the positives of the merger, but the FCC didn’t look quite satisfied.

How Is FCC Addressing Sprint’s Spectrum Auction Concern?

Both Sprint and T-Mobile have complained that the Big Red and the Dallas carrier have enormous cash and liquid assets that could support them in the spectrum bid. Sprint and T-Mobile are barely managing to upgrade their network to 4G LTE and widen coverage – having enough cash to fight in the incentive auction is a farfetched dream for the two.

As a solution to this, FCC is trying to formulate some policies through which it would be able to restrict the participation of Verizon and AT&T beyond a threshold, which is not determined yet. If FCC comes up with such restriction that would help the Kansas and Bellevue carrier and boost their participation, it would partially quiet the merger talks. After the limit for each carrier is ascertained, one of the crucial pain points of Sprint’s and T-Mobile’s would be addressed. But this also means that Sprint is losing out on one very important point that was supporting the cause of its merger petition.

Last Word

The FCC’s restriction proposal has not been officially circulated. But once it does, the merger proposition would weaken. Another point to be noted is how would the FCC determine Sprint threshold or the upper limit of participation in the incentive auction. Both the issues, acquiring low frequency spectrum at the auction and merging with T-Mobile, are part of Sprint’s huge plan of emerging as a stronger player, and effectively contending with its larger rivals. Let’s see how things unfold for the carrier.

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