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T-Mobile-Sprint deal wins Justice Department ok: What you need to know – CNET

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T-Mobile on Friday got the Justice Department to sign off on its $26.5 billion bid to buy Sprint. The lynchpin of the deal is Dish Network, which will acquire Sprint's prepaid businesses and spectrum for $5 billion, as well as get access to T-Mobile's network as part of a settlement with the wireless carriers. The deal preserves the government's goal of having four competitors, although it's unclear how wide-ranging the Dish service will be.

The merger, which was announced more than a year ago, could bring about a seismic shift in the mobile world. Dish's emergence as a new wireless player gives consumers another potential alternative for service. T-Mobile and Sprint's combined assets could jumpstart its 5G ambitions, pushing the industry further into the next-generation technology. They have also said they will lock in prices for at three years.

The Justice Department took its time with this approval. It has been concerned that reducing the number of nationwide nationwide carriers from four to three would hurt consumers. The Federal Communications Commission, which also must approve the deal, gave its blessing last month.

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The deal needs the blessing of both the FCC and the Justice Department. The two agencies usually work side by side on merger reviews and typically agree on whether to approve deals. Experts say it's rare that they'd come to different conclusions. Approval from the Justice Department could also help the company as it faces lawsuits filed by a group of state attorneys general who argue the merger should be stopped because it will harm competition and increase prices.

If the deal is approved, the company would retain the T-Mobile name, and T-Mobile CEO John Legere and his management team would run day-to-day operations.

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It comes at a time when the US carriers are bending over backward to win your business, with offers like unlimited data and freebies, such as access to Netflix. Sprint is still giving away a year of service for free. Those competitive pressures have driven T-Mobile and Sprint together. And while executives from both companies vow lower prices and better service, consumer groups and analysts are skeptical.

Indeed, some senators are seeking to kill the deal. T-Mobile and Sprint executives have appeared before lawmakers twice to make their case. In a bid to convince regulators, T-Mobile hired a former commissioner with the Federal Communications Commission and vowed not to raise prices.

Worried about how this might affect you? CNET breaks down everything you need to know about this mega mobile merger.

Why a merger?

T-Mobile and Sprint have long courted each other. The logic is simple: Verizon and AT&T are far bigger than either of the two companies. A merger would create a stronger competitor.

Why now?

Actually, T-Mobile and Sprint tried twice before. Back in 2014, Sprint parent SoftBank floated the idea of a deal with T-Mobile, but regulators and the White House were keen on keeping four national competitors.

The current administration and the FCC are more open to deals, which is why both sides got close to a deal in 2017. The deal fell apart in late 2017 when SoftBank and T-Mobile parent Deutsche Telekom couldn't agree on how much control each side would get.

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Then President-elect Donald Trump stands with SoftBank CEO Masayoshi Son.

Spencer Platt/Getty Images

So this deal is a slam dunk, right?

Nope. Since the deal was announced more than a year ago, analyst opinions on whether the merger will get regulatory approval have hovered around 50-50. The odds improved when the FCC threw its support behind the deal. But the DOJ concerns left some doubt on the outcome. Remember, the government sued to kill a deal between AT&T and Time Warner, and those two companies weren't competing against each other. The DOJ ultimately lost that case.

T-Mobile and Sprint have pushed the idea that the merger would create jobs, largely thanks to the combined company's investment in 5G. In January, they said they'd build five customer service centers after the deal closed. They've also promised to freeze prices for the next three years. And they've been promising a nationwide build-out of their 5G network, along with a new service to offer rural broadband customers a fixed wireless broadband solution.

The company codified those promises in a deal with the FCC in exchange for the agency's support. Even after the DOJ settlement, there are the lawsuits from the states. A group of 13 state attorneys general and the District of Columbia, led by New York Attorney General Letitia James and California Attorney General Xavier Becerra, filed or joined a multistate lawsuit last month claiming the merger would "deprive consumers of the benefits of competition and drive up prices for cellphone services."

On Friday, the attorneys general from Nebraska, Kansas, Ohio, Oklahoma and South Dakota signed on to the Justice Department settlement.

On July 24 it was reported that cable company Charter Communications, which already operates a mobile network on Verizon called Spectrum Mobile, was interested in buying divested T-Mobile and Sprint assets but never heard back from the DOJ.

What's the deal the Justice Department has hammered out?

The Justice Department is positioning Dish as a potential fourth carrier in the wake of the merger. This would answer the agency's concerns that the deal would leave the US wireless market competitive with just AT&T, Verizon and T-Mobile as national players. As reported part of a $5 billion deal, Dish would buy additional wireless spectrum from Sprint and T-Mobile, so that it could build its own wireless network. Sprint and T-Mobile would also sell Dish Sprint's prepaid services, Boost Mobile, Virgin Mobile and Sprint prepaid, according to Bloomberg. Also as part of the deal, Dish would get a six- to seven-year wholesale agreement to sell T-Mobile wireless service under the Dish brand, Bloomberg said.

Why would Dish want to strike a deal with T-Mobile?

Dish already owns billions of dollars' worth of its own spectrum, but the company has yet to build its own wireless network. Some have accused the company of hoarding valuable wireless spectrum, but it has yet to make a major announcement about the plans for its spectrum. The company has until March 2020 to utilize the airwaves or risk losing its licenses. The satellite TV provider has reportedly been hoping to gain an extension from the government as part of its negotiations to buy the divested assets.

Purchasing Boost, Virgin Mobile and Sprint wireless prepaid businesses and getting additional airwaves would make it easier and more cost-effective for Dish to finally build a competing network.

So Dish will be a new fourth carrier?

Yes. Although it's unclear what the service will look like beyond utilizing Sprint's prepaid business and retail stores. Dish will also get access to the T-Mobile network for seven years.

Under the deal, Dish will pay $1.4 billion for the prepaid businesses and $3.6 billion for 800Mhz spectrum, which is coveted because it has great range and can go through walls, even if it can't carry super-high speeds.

"Taken together, these opportunities will set the stage for our entry as the nation's fourth facilities-based wireless competitor and accelerate our work to launch the country's first standalone 5G broadband network," Dish CEO Charlie Ergen said in a statement.

What has T-Mobile promised the FCC it would do?

In May, T-Mobile negotiated a deal with the FCC that promised 5G coverage to nearly all of the US. It included build-out requirements to ensure 5G deployment in rural communities, a promise to offer wireless home broadband that could substitute for a wireline, and the divestiture of Boost Mobile.

Specifically, as part of the FCC's deal, the new T-Mobile would meet several 5G network coverage benchmarks. For instance, within three years the company will provide 5G service to 97% of the US population, and within six years 99%. For rural Americans, the coverage would be 85% within three years, and 90% within six.

T-Mobile has also promised to offer a broadband alternative to rural customers and has guaranteed that 90% of Americans will see mobile broadband service at speeds of at least 100Mbps if the deal is approved. In addition to promises for 5G rollout, T-Mobile also agreed to divest Boost Mobile, but it will keep T-Mobile's prepaid brand, Metro.

How strange is that the FCC approved the merger before the DOJ?

Experts say it's very strange, especially when the core issues around the merger center on antitrust concerns. It's especially unusual given that Pai has in the past deferred to the DOJ when similar issues have come up in other mergers.

The DOJ has declined to comment, except to say that it evaluates mergers by a different standard than the FCC. The FCC merely has to find whether a merger is in the "public interest." But the DOJ must investigate whether a merger violates antitrust law.

What's strange about this case is that Pai has let the DOJ take the lead on past mergers involving similar antitrust issues, suggesting that if the DOJ is satisfied a deal won't harm consumers then it must inherently be in the "public interest." This was exactly the case in 2017 when the FCC under Pai followed the Justice Department's lead in evaluating a merger between Level 3 and CenturyLink, a transaction that also relied heavily on antitrust and competition analysis. The DOJ found no antitrust concerns and approved the merger. The FCC did as well.

The FCC also isn't commenting on why it issued its decision ahead of the DOJ. But a spokesman for the agency tried to downplay the situation during a call with reporters, saying the two agencies often release statements separately.

What could happen next?

The Justice Department settlement is a huge win, but that doesn't mean the deal is completely out of the woods yet. The deal still faces lawsuits from the state attorneys general and needs approval from the California Public Utilities Commission.

"We have serious concerns that cobbling together this new fourth mobile player, with the government picking winners and losers, will not address the merger's harm to consumers, workers, and innovation," New York State Attorney General Letitia James said in a statement after the deal was announced.

"Here in California and across our coalition of states, our concerns with this merger have been, are, and continue to be about the harms posed by over-consolidation and diminished market competition,"said California Attorney General Xavier Becerra. "A marketplace with fewer active competitors drives up costs, reduces consumer choice and thwarts innovation."

James and Becerra co-lead the states' fight against the deal.

Experts, however, say the asset sale to Dish and winning that Justice Department's approval will help T-Mobile fight these other lawsuits to block the merger.

What's with the hotel controversy?

The day after T-Mobile and Sprint announced the deal, several high-level T-Mobile executives opted to stay at President Donald Trump's Trump International Hotel, according to The Washington Post. Executives became frequent guests of the hotel, which critics say is an attempt to curry favor with the current administration.

Legere denied any wrongdoing in an interview in February.

OK, but how does this affect me?

When the deal closes, you'll have one less major national carrier to choose from. But you'll have Dish as an option, although right now the assets it gets focus on prepaid wireless service.

T-Mobile Chief Operating Officer Mike Sievert said in an interview that Un-carrier events are still planned for this year as the status quo remains.

Sprint customers get one near-term benefit: The company struck a roaming deal to let its customers ride on the T-Mobile network if Sprint isn't available, which should yield better coverage in more places.

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T-Mobile CEO John Legere would lead the new combined company.

CNET

What happens if the deal closes?

That's the $26 billion question. T-Mobile and Sprint promise a combined network that'll deliver better service at lower prices. They argue that their combined scale would help them build out a faster, more efficient network.

"This competition will result in lower prices for Americans," T-Mobile's Sievert said. "It will probably result in lower prices across the board."

But consumer advocacy groups are saying the deal raises red flags.

"If the national wireless market shrinks from essentially four companies to three, history suggests the negative impact on competition would mean higher prices for many people," said Jonathan Schwantes, senior policy counsel for Consumers Union.

So prices could go up?

The companies have agreed to not raise prices for three years if the deal goes through. But after that, all bets are off. There's a reason why Wall Street likes this deal: Financial analysts think the industry is a little too competitive and that removing one player could ease the pressure.

But given the entrenched positions of Verizon and AT&T, the combined company might still need to pull out all the stops to stay competitive.

"It doesn't matter if you have three or four killers in the room going at each other," said Roger Entner, a consultant with Recon Analytics. "There will be blood on the ground."

Lopez Research analyst Maribel Lopez said she doesn't buy the idea of lower prices but that she suspects pricing will remain neutral after the deal.

Didn't Sprint's Marcelo Claure say 5G would be an opportunity to increase prices?

Yep. Claure, now executive chairman of Sprint, said during a keynote address at the Mobile World Congress trade show in March that he sees 5G as an opportunity to charge more, because it would be considered a premium service.

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