Home » Wall Street » Recent Articles:

DoJ Staffers Recommend Blocking the T-Mobile/Sprint Merger

Staffers working for the antitrust division of the Department of Justice have recommended the agency sue to block the merger of T-Mobile and Sprint, arguing it will reduce competition and raise prices for consumers.

Two sources familiar with the matter told CNBC staffers have been skeptical of the merger and recommended blocking it on antitrust grounds. But the final decision will rest with President Donald Trump’s political appointees, notably Makan Delrahim, who heads the antitrust division. Delrahim can agree, modify, or reject the staffers’ recommendations.

The disclosure hammered Sprint shares earlier this morning in pre-market trading. Wall Street analysts are likely experiencing significant headaches trying to predict where the deal will ultimately end up. Earlier this week, the FCC’s Republican majority signaled they were prepared to approve the merger, based on concessions including the spinoff of prepaid Boost Mobile, which resells Sprint service.

A final decision from the Justice Department is likely to be announced in June.

‘Drive-By Pai’ Takes Out Consumer Interests by Favoring T-Mobile/Sprint Merger

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.

AT&T Expects to Offer “Nationwide” 5G and Fiber Broadband Service Within 3-5 Years

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.

Average Spectrum Broadband-Only Customer Now Using More than 400 GB a Month

Charter Spectrum’s broadband-only customers run up more than double the amount of broadband usage average customers subscribing to both cable TV and broadband use, and that consumption is growing fast.

“Data usage by residential internet customers is rising rapidly and monthly median data usage is over 200 GB per customer,” Charter CEO Thomas Rutledge said on a morning quarterly results conference call. “When you look at average monthly usage for customers that don’t subscribe to our traditional video product, usage climbs to over 400 GB per month.”

Last week, Comcast reported its average broadband customer also used over 200 GB a month, but did not break out the difference between those subscribing to cable TV and those who do not. If Comcast’s broadband-only customers are consuming a comparable amount of data, they could be nearing half of their monthly usage allowance (1 TB), in markets where Comcast caps its customers’ usage. But because that is only an average, it means many more Comcast customers are likely nearing or now exceeding Comcast’s data cap, exposing them to hefty overlimit penalties.

Spectrum does not impose any data allowances on its customers — all usage is unlimited.

Charter officials also reported their average mobile customers use “well under 10 GB a month.” The fact Charter did not get more specific about mobile usage is important because the new product is getting scrutiny from some on Wall Street concerned it will have a hard time becoming profitable because of its wholesale agreement with Verizon Wireless, which provides the 4G LTE service for Spectrum Mobile.

Subscribers have been primarily drawn to the $14/GB plan, which includes unlimited talk and texting, because it offers a very low entry price for a full-function wireless plan. But a customer only needs to use more than 3 GB of service per month to find their bill higher than what they would pay subscribing to Spectrum Mobile’s $45 unlimited usage plan. If Charter executives said the average mobile user consumed 5 GB of data, analysts could deduce what the average customer bill probably looked like. To maximize profits, Charter needs customers to select an unlimited data plan and keep data usage low to assure it can cover the wholesale costs Verizon Wireless charges the cable company for wireless connectivity.

Rutledge

Rutledge stressed he expects Spectrum Mobile to be profitable with the current Verizon Wireless MVNO contract in place — the service simply needs a larger user base to overcome its current losses.

Rutledge also announced Spectrum Mobile was testing dual SIM technology, which could allow it to eventually offload more of its 4G LTE traffic to its own (cheaper) network, which could eventually include mid-band wireless spectrum and the CBRS spectrum the company is already testing for fixed wireless service for rural areas. Spectrum could also follow Comcast with its own in-home network of publicly available Wi-Fi or innovate with unlicensed wireless mobile spectrum using small cells or external antennas.

Charter executives noted that customer data demands were pushing many to upgrade to higher speed internet products.

“Over 80% of our internet customers are now in packages that deliver 100 Mbps of speed or more and 30% of our customers are getting 200 Mbps or more,” Rutledge said. “We’re also seeing strong demand for our Ultra product, which delivers 400 Mbps, and we have gigabit service available everywhere.”

The costs to continue upgrading service for broadband customers are negligible on the company’s current platform, Rutledge admits. In the future, Charter Spectrum is considering offering 10 Gbps and 25 Gbps symmetrical service to customers, and it can scale up upgrades very quickly.

“For example, in only 14 months we launched DOCSIS 3.1, which took our speeds up to 1 Gbps across our entire footprint at a cost of just $9 per passing,” Rutledge said.

Justice Dept. Staffers Warn T-Mobile/Sprint Merger Unlikely to Win Approval as Structured

Justice Department staffers have told T-Mobile and Sprint that their $26 billion merger is unlikely to win approval as presently structured, according to a report in the Wall Street Journal.

Unnamed sources familiar with the deal told the newspaper the Justice Department’s Antitrust Division is among the most skeptical of those reviewing the deal, questioning claims from the companies that the merger will create synergy and increased efficiency that could free up resources to dramatically expand the combined company’s wireless business.

At the core of the concern is the impact of combining the nation’s third and fourth largest wireless carriers, reducing competition to just three national postpaid companies — AT&T, Verizon Wireless, and T-Mobile. That could present an unacceptable threat to competition.

The Justice Department is not alone expressing concern over the merger deal. Multiple state attorneys general are still reviewing the deal and several have announced they are prepared to sue the companies involved to stop the merger if it manages to win approval on the federal level. The Federal Communications Commission is also said to be questioning some of the claims of the company about the merits of its promised 5G home broadband service and exactly how much consumers could save should they subscribe.

The Financial Times also published a story this afternoon essentially confirming the Journal story.

John Legere, CEO of T-Mobile USA, denied the premise of the Journal’s story in a tweet late this afternoon, calling it “simply untrue,” but refused further comment.

Any decision about the merger is not expected for several weeks, and any recommendations from the staff report on the deal can be overruled by the political appointees that run the Justice Department. The Times reports that the final decision will likely rest with Makan Delrahim, President Trump’s pick as chief of the antitrust division. With staff objections now leaked to the press, Delrahim could be in a politically difficult situation overruling his staff’s recommendations. In the meantime, company officials can offer concessions, such as selling off certain assets to overcome regulator objections.

Many Wall Street analysts feel the chances of the merger winning approval are reduced the longer the merger review remains underway in Washington. Many have placed the odds at less than 50% that the deal will ultimately be approved. If it is rejected, T-Mobile is expected to continue its business without any significant financial hurdles. Sprint may be a different matter, as its Japanese backer SoftBank has soured on the merits of pouring additional money into Sprint’s wireless business.

Search This Site:

Contributions:

Recent Comments:

  • PMN: I got the same answer from the AT&T "Call Center" agent, and I hung up and didn't escalate. Did you happen escalate to the "Retention" dept? I w...
  • Larry Fostano: BBB and or your Attorney General. I say , lest get a petition going to submit also....
  • Ryan: Just tried this, worked like a charm. Said I was switching to streaming because of the price. Right away they offered $40 for choice for 12 months....
  • EDWIN Dennis: I ordered a liveware antenna and amplifier: they tried to charge me for 3 antennas.. I got that straight at the bank. Now, no response from liveware; ...
  • j lundberg: after forcing the purchase of their phone- i paid taxes and 1st months service in January ,then find out the phone will not be here before Dec. 29 as ...
  • John Michel: How can one stop SPECTRUM from sending filthy, immoral emails to my email address. I went to settings to set up a block on these filthy emails. Does...
  • Catherine Harris: Where can I find COUT TV on Frontier?...
  • Roger: I read about this once. I think it was in the book 1984....
  • Roger: On top of that, you know the cable companies are going to price the individual stations in such a way that ten or fifteen of them will be the same pri...
  • Oddest Artist: Agreed. Nearly all deals from programmers (and broadcasters) require equal distribution and/or carriage of their services. Providers are bound contrac...
  • Doug: Good luck with that. Forcing a cable company to sell channels a-la-carte will need the consent of the content owner (i.e. - Big Media). And the cont...
  • L. Nova: Blame Wall Street and their relentless greed led by people such as Craig Moffett who have hissy fits when companies such as Verizon want to spend the ...

Your Account: