Pai

FCC Chairman Ajit Pai found a lot to like about the proposed merger of T-Mobile and Sprint and has recommended his fellow commissioners approve the transaction after the companies offered new commitments to ease anti-competitive and anti-trust concerns.

That typically means the FCC’s 3-2 Republican majority will quickly approve the deal in a forthcoming vote, with three Republicans in favor and two Democrats opposed, if tradition holds.

Pai’s support for the merger is hardly surprising. Since joining the FCC as a commissioner in the second half of the Obama Administration, Pai has consistently opposed every pro-consumer item on the FCC’s docket. He loves industry-consolidating mergers, hates telecom companies being forced to open their businesses to competition on things like set-top boxes, and considers almost all pro-consumer protection policies from net neutrality to merger deal conditions examples of “overregulation” that he argues are harmful to the free market and investment.

The troubled merger, which would create what we will call T-Sprint, has remained under review for months, recently stalled over revelations the two companies tailored the transaction to appeal to President Trump. T-Mobile executives spent $195,000 repeatedly renting rooms at the Trump International Hotel in Washington and spent large sums hiring Trump-connected “advisors” including Reince Priebus and Corey Lewandowski. The merger pitch was changed to emphasize its impact on rapidly growing 5G networks, a talking point favorite of President Trump, who wants to beat the Chinese over the development of next generation wireless networks.

The merger must win approval from both the FCC and the Justice Department. The latter is said to be troubled about the anti-competitive impact of reducing the number of national wireless carriers from four to three. Such a consolidation would likely permanently change the wireless competition paradigm, because there has been no interest among new entrants to construct multi-billion dollar national cellular networks to compete with established wireless companies.

On Monday, T-Mobile and Sprint delivered additional concessions which seem to have won the approval of Mr. Pai.

“Two of the FCC’s top priorities are closing the digital divide in rural America and advancing United States leadership in 5G, the next generation of wireless connectivity,” Pai said in a statement Monday. “The commitments made today by T-Mobile and Sprint would substantially advance each of these critical objectives.”

But a closer examination of “T-Sprint’s concessions” shows there is remarkably little there to protect competition and consumers:

• A proposed spin off of prepaid Boost Mobile, which relies on the weaker Sprint network, is hardly much of a concession considering it will likely be impacted by the decommissioning of Sprint’s network, requiring at least some customers to buy new equipment that works on T-Mobile’s network. T-Sprint would also continue to control Boost competitors Virgin Mobile and MetroPCS, putting Boost at a distinct disadvantage.
• The “nationwide” 5G network promised by T-Sprint is replete with fine print. The company will not be formally assessed on its expansion progress for three years, has demanded that T-Mobile’s own employees be allowed to conduct network performance tests — a conflict of interest, and that if it fails to meet its own proposed metrics, the FCC must forego the use of its regulatory forfeiture powers. Instead, the company agrees to pay “voluntary” fines if it fails coverage expansion commitments that are open to wide interpretation and litigation.
• T-Sprint agreed to expand its “5G” coverage, but will rely heavily on existing macro cell towers and low and mid-band spectrum, shared by a much larger number of users than millimeter wave/small cell technology. That will probably deliver a more modest, incremental upgrade over existing 4G LTE technology, not a game-changer that can deliver gigabit speeds to wireless customers. Nothing precludes AT&T and Verizon from deploying similar upgrades without a competition-crushing merger between the third and fourth largest competitors.
• T-Sprint’s proposed wireless home broadband replacement does not include a commitment to provide unlimited service. In fact, vague language in the commitment letter suggests T-Sprint will offer the service with a performance and usage expectation akin to other fixed wireless networks. That likely means customers will endure a data cap and speeds that are not comparable to wired technology. Once the company has signed up 9.5 million home broadband customers, any commitments offered to regulators about that service automatically expire.
• The FCC is expected to give up much of its regulatory authority in return for T-Sprint’s commitments. If T-Sprint walks away from its commitments and not invest billions on its network expansion, it can pay a much smaller fine and have its merger obligations disappear. The FCC will not be able to use its more effective compliance power: forfeiture penalties.

T-Sprint’s argument is that this transaction will accelerate the deployment of 5G technology in a war for 5G supremacy with China. But exactly what technology is deployed, on what spectrum, using small cells or macro cell towers, makes a lot of difference. China’s wireless companies are owned and controlled by the Chinese government, which is also underwriting some of the costs. America’s networks are financed with private capital (and customer bills). T-Sprint’s 5G plans are also far less ambitious than those from AT&T and Verizon, and the cost to long-term competition is too high. The FCC should know that.

Congress has noticed that this merger has been rejected before during the Obama Administration for being anti competitive. Nothing has changed with respect to that. But T-Mobile’s lobbying sure has — this time trying to appeal to the Trump Administration for approval. Pai is certainly on board, and that could cost American consumers plenty.

Most telling of all is Wall Street’s reaction to today’s news. A merger that is being sold as as an AT&T/Verizon killer appears to be anything but. Verizon stock rose by 4.2% and AT&T by 4%. Investors recognize that consolidation can mean only one thing: higher prices. It means the end of the wireless price war that had Sprint and T-Mobile taking potshots at their larger rivals, forcing them to cut prices and bring back unlimited data plans.

It would be ruinous for T-Sprint to continue slashing prices and taunting AT&T and Verizon with costly promotions and giveaways. AT&T and Verizon expect T-Sprint will join their comfortable cartel with suspiciously similar plans and pricing, while firing up to 30,000 redundant workers and decommissioning Sprint’s wireless network. That last fact is well known on Wall Street, too. Cellphone tower owners took a beating in the stock market on the news they could lose Sprint as a customer. American Tower was down 1.9%, Crown Castle fell 3.2% and SBA Communications Corp. dropped as much as 4.5%.

The deal still must pass muster with the Justice Department, and attorneys general from multiple U.S. states are also opposing the deal on the state level. But the Republican members of the FCC joining up to support the deal make it more likely that it will eventually get approved.

WASHINGTON (Reuters) – T-Mobile US Inc’s $26 billion acquisition of rival Sprint Corp won the support of the head of the Federal Communications Commission on Monday, in a big step toward the deal’s approval.

FCC Chairman Ajit Pai, a Republican, came out in favor of the combination after the companies offered concessions including selling Sprint’s Boost Mobile prepaid cell service.

Sprint shares surged 23.2% while T-Mobile shares rose 5.1%. If okayed by the FCC, the deal would still need approval from the U.S. Justice Department’s antitrust division.

If the deal is completed, the number of U.S. wireless carriers would drop to three from four, with Verizon Communications Inc and AT&T Inc leading the pack.

Some telecommunications experts have predicted that prices for cell phone service would rise as a result, and U.S. Senator Richard Blumenthal agreed.

“The FCC’s seeming abdication makes it even more important for the Department of Justice to step up to the plate to block this merger,” the Democratic senator said in a statement.

Pai will recommend that the other four FCC commissioners vote to approve the merger. Commissioner Brendan Carr, a Republican, said on Monday he will vote in favor.

The third Republican, Mike O’Rielly, did not reply to a request for comment. The Commission is made up of three Republicans and two Democrats.

Pai

FCC Commissioner Jessica Rosenworcel, a Democrat, tweeted her disapproval.

“We’ve seen this kind of consolidation in airlines and with drug companies,” she said. “It hasn’t worked out well for consumers. But now the @FCC wants to bless the same kind of consolidation for wireless carriers. I have serious doubts.”

The FCC will not formally vote on the merger on Monday but will first draft an order, two people briefed on the matter said.

The FCC move boded well for the Justice Department to also approve the deal, Citi analysts said in a note.

“While the two federal agencies have different standards of review that could lead to different outcomes, we believe the likelihood for some coordination between the agencies is encouraging for the approval prospects by the (Justice Department),” the note said.

Reviews by state attorneys general and public utility commissions could push full approval back to the third quarter of this year, the Citi note said.

CONCESSIONS

In a filing with the FCC on Monday, the companies pledged to sell prepaid wireless provider Boost Mobile.

The sale will include the brand name, any active accounts and dedicated Boost assets and staff but no wireless spectrum. The new Boost could buy network access from T-Mobile for at least six years.

One critic of the deal called the concession weak.

“I don’t understand how the mere spinning off of one of three prepaid services would satisfy (Pai), given all the evidence in the record that post-paid (wireless) prices will go up,” said Gigi Sohn, who held a senior FCC position during the Obama administration. “I just think this is very weak tea.”

The Boost sale is aimed at resolving concerns that the deal would give the combined company 54% of the prepaid market, which generally includes those with poor credit who cannot pay with a credit card.

T-Mobile, which is about 63 percent owned by Deutsche Telekom AG, also promised the new company would build a “world-leading” 5G network, which is supposed to be the next generation of wireless service. It promises to give rural Americans robust 5G broadband and enhance home broadband.

The FCC and Justice Department had been expected to make a decision in early June. They have been weighing potential a loss of competition and higher prices for consumers against the prospect of a more powerful No. 3 wireless carrier that can build a faster, better 5G network.

T-Mobile has about 80 million customers and Sprint has about 55 million customers.

Reporting by David Shepardson and Diane Bartz, additional reporting by Douglas Busvine in Frankfurt; Editing by Susan Heavey, Paul Simao and Jeffrey Benkoe

Back in April, Charter Communications and staffers from the New York Department of Public Service (Public Service Commission) reached a tentative settlement to resolve a dispute over whether Charter violated the terms of the 2016 Merger Order granting approval of the acquisition of Time Warner Cable.

Most of the contention came over Charter’s ability to meet the timeline for expanding cable service to an additional 145,000 unserved address in New York State and whether the company counted ineligible addresses towards their target.

Under the terms of the settlement, which still requires approval by the Commission, Charter agrees to:

1. Continue to invest in network expansion to bring high speed broadband to 145,000 unserved addresses in New York outside of the New York City metropolitan area.
2. Complete expansion no later than September 30, 2021, under a schedule that will be closely monitored by state regulators to ensure compliance.
3. Agree, over and above the original merger conditions, to spend an additional $12 million for broadband expansion projects to be selected by the PSC and the New York State Broadband Program Office (including some addresses previously assigned HughesNet satellite broadband.)

The PSC now wants to receive comments from interested parties about the proposed settlement. If the agreement is approved, Charter Spectrum will remain in New York as the state’s largest cable operator.

How to Comment:

Make sure to reference: “Case 15-M-0388 – Settlement Agreement” in your written comments.

Website

Comments may be entered directly into the case file by clicking here. Then click on the “Post Comments” button at the top of the page and input your comments using the form provided.

E-Mail

Send comments to: Hon. Kathleen H. Burgess, Secretary, at [email protected]

Mail

Hon. Kathleen H. Burgess
Secretary
Public Service Commission
Three Empire State Plaza
Albany, NY 12223-1350

All comments must be received by July 8, 2019.

Stephenson

AT&T CEO Randall Stephenson on Tuesday told investors that AT&T will deploy a combination of fiber optics and 5G wireless and be able to sell a “true, high-speed internet network throughout the United States” within the next three to five years.

“In three to five years out, there will be a crossover point,” Stephenson told investors. “We go through this all the time in industry. 5G will cross over, performance wise, with what you’re seeing in home broadband. We’re seeing it in business now over our millimeter-wave spectrum. And there will be a place, it may be in five years, I think it could be as early as three, where 5G begins to actually have a crossover point in terms of performance with fiber. 5G can become the deployment mechanism for a lot of the broadband that we’re trying to hit today with fiber.”

Although the remarks sound like a broadband game changer, Stephenson has made this prediction before, most recently during an AT&T earnings call in January, 2019. Stephenson told investors he believed 5G will increasingly offer AT&T a choice of technology to deploy when offering broadband service to consumers and businesses. In high-cost scenarios, 5G could be that choice. In areas where fiber is already ubiquitous, fiber to the home service would be preferred.

Stephenson’s predictions about nationwide service will depend in part on the commercial success of millimeter wave 5G fixed home broadband, which will be required to satisfy broadband speed and capacity demands. Verizon Wireless has been offering fixed 5G in several markets with mixed results. The company’s early claims of robust coverage have been countered by Verizon’s own cautious customer qualification portal, which is more likely to deny availability of service to interested customers than offer it.

But Stephenson remains bullish about expanding broadband.

“So all things considered, over the next three to five years, [with a] continued push on fiber, 5G begins to scale in millimeter-wave, and my expectation is that we have a nationwide, true, high-speed internet network throughout the United States, [using] 5G or fiber,” Stephenson said.

Whether anything actually comes of this expansion project will depend entirely on how much money AT&T proposes to spend on it. Recently, AT&T has told investors to expect significant cuts in future investments as AT&T winds down its government-mandated fiber expansion to 14 million new locations as part of approval of the DirecTV merger-acquisition. In fact, AT&T’s biggest recent investments in home broadband are a result of those government mandates. AT&T has traditionally focused much of its spending on its wireless network, which is more profitable. For AT&T to deliver millimeter wave 5G, the company will need to spend billions on fiber optic expansion into neighborhoods where it will place many thousands of small cell antennas to deliver the service over the short distances millimeter waves propagate.

AT&T could sell a fixed 5G broadband service similar to Verizon Wireless, confine its network to mobile applications, or offer fixed wireless service to commercial and manufacturing users in selected areas. Or it could offer a combination of all the above. AT&T will also need to consider the implications of a fiber buildout outside of its current landline service area. Building fiber optic networks to provide backhaul connectivity to AT&T’s mobile network would not antagonize its competitors nearly as much as the introduction of residential fixed 5G wireless as a home broadband replacement. The competitive implications of that would be dramatic, especially in communities skipped by Verizon FiOS or stuck with DSL from under-investing independent telephone companies like CenturyLink, Frontier, and Windstream. Should AT&T start selling 300+ Mbps fixed 5G wireless in these territories, it would cause significant financial distress for the big three independent phone companies, and could trigger a competitive war with Verizon.

Wall Street is unlikely to be happy about AT&T proposing multi-billion dollar investments to launch a full-scale price war with other phone and cable companies. So do not be surprised if AT&T’s soaring rhetoric is replaced with limited, targeted deployments in urban areas, new housing developments, and business parks. It remains highly unlikely rural areas will benefit from AT&T’s definition of “nationwide,” because there is no Return on Investment formula that is likely to work deploying millimeter wave spectrum in rural areas without heavy government subsidies.

For now, AT&T may concentrate on its fiber buildout beyond the 14 million locations mandated by the DirecTV merger agreement. As Stephenson himself said, “When we put people on fiber, they do not churn.” AT&T has plenty of runway to grow its fiber to the home business because it attracts only about a 25 percent market share at present. Stephenson believes he can get that number closer to 50%. He can succeed by offering better service, at a lower price than what his cable competitors charge. Since 5G requires a massive fiber network to deploy small cells, there is nothing wrong with getting started early and then see where 5G shakes out in the months and years ahead.

CenturyLink is considering getting out of the consumer landline and broadband business and instead focusing on its profitable corporate-targeted enterprise and wholesale businesses.

CenturyLink CEO Jeff Storey told investors on a quarterly conference call that the phone company had hired advisors that will conduct a strategic review of all CenturyLink products and services targeting the consumer market and is “very open” to the possibility to selling or spinning off its residential business, assuming it can find an interested buyer.

“Let me be clear, we’re early in what I expect to be a lengthy and complex process,” Storey told investors, noting the company’s first priority is to take care of its shareholders. “During our review, we will not modify our normal operations or our investment patterns. I can’t predict the outcome or the timing of this work or if any transactions will come from it at all. Our focus, though, is value maximization for shareholders. If there are better paths to create more value with these assets, we will pursue them.”

CenturyLink’s landline network is similar to those of other independent telephone companies. There are significant markets where extensive upgrades have introduced fiber broadband service and high-speed DSL, but most of CenturyLink’s network remains reliant on copper wire infrastructure that is not capable of supplying high speed internet to customers.

Like most large independent telephone companies, the majority of CenturyLink’s residential customers can only purchase slow speed DSL service offering less than 20 Mbps. A growing number of customers have canceled service after running out of patience waiting for upgrades. CenturyLink executives told investors last week the company is abandoning investments in bonded or vectored DSL upgrades, claiming anything other than fiber optics is not “competitive infrastructure.”

CenturyLink also admitted it is losing customers after deciding to shelve its unprofitable, competing Prism TV product. The only growth on the consumer side of CenturyLink is coming from significant broadband upgrades.

“In the first quarter, we saw a net loss of 6,000 total broadband subscribers. This quarter’s total was made up of declines of 83,000 in speeds below 20 Mbps and growth of 77,000 in speeds of 20 Mbps and above,” reported CenturyLink chief financial officer Neel Dev. “Within those gains, we added 47,000 in speeds of 100 Mbps and above. Voice revenue declined 12% this quarter. Going forward, we expect similar declines in voice revenue. As a reminder, the decline in other revenue was driven by our decision to de-emphasize our linear video product.”

Dev reported that 55% of CenturyLink’s customers have access to speeds of 20 Mbps or less, and the company has ceased spending marketing dollars advertising slow speed DSL. Instead, it “microtargets” service areas where customers can sign up for service faster than 20 Mbps.

Observers note CenturyLink’s interest in its landline business has been waning for some time. The change in attitude can be traced back to CenturyLink’s merger with Level 3, a very profitable provider of connectivity to the enterprise and wholesale markets. CenturyLink’s commercial services are consistently earning most of the revenue the company reports to shareholders every quarter, with residential services declining in importance.

A sale of CenturyLink’s local landline and consumer-focused internet businesses could be hampered because of the likely lack of buyers. Frontier Communications had been an aggressive player in acquiring landline networks cast off by Verizon and AT&T, but that company is now in financial trouble and faces major debt issues. It would be an unlikely bidder. Windstream is still in bankruptcy reorganization and an acquisition is out of the question. Smaller independent phone companies like Consolidated Communications (owner of former FairPoint Communications), also likely lack financing to achieve such a deal, especially as interest rates continue to rise. CenturyLink also has the option of spinning off its residential business into a new corporate entity, but would likely result in a financially hobbled enterprise that may have trouble attracting capital to continue funding further expansion.