FCC’s Conditional Approval of T-Mobile and Sprint Merger May Impact Rural Operators

FCC’s Conditional Approval of T-Mobile and Sprint Merger Could Have a Major Impact on Rural Operators

Memorandum Opinion and Order, Declaratory Ruling,  and Order of Proposed Modification     
WT Docket No. 18-197


The Federal Communications Commission (“FCC” or the “Commission”) has issued a Memorandum Opinion and Order, Declaratory Ruling, and Order of Proposed Modification (the “Order”)[1] formally approving the merger of T-Mobile and Sprint (together, “New T-Mobile”), subject to certain conditions.  In the Order, the Commission reasoned that the potential advancement of 5G deployment in the U.S. and the increased coverage in rural areas that may stem from the transaction outweigh the potential anticompetitive effects of the merger.  Although the Commission announced its approval of the transfer of Sprint’s licenses, authorizations, and spectrum leases to T-Mobile on October 16, 2019, the Order codifies the conditions and concessions imposed on the transaction, which include (1) various build-out commitments after three and six years, including specific targets for rural areas, (2) verification requirements and monetary penalties if New T-Mobile fails to meet the conditions, and (3) divestiture of Sprint’s leading prepaid brand, Boost Mobile.  Additionally, the Commission proposed modified construction deadlines related to DISH’s licenses in connection with DISH’s purchase of Boost Mobile and construction of a 5G broadband network.  Although the Commission joins the Department of Justice (“DOJ”) in approving the transaction, T-Mobile and Sprint still face legal challenges by many states seeking to block the deal.  While the transaction is not yet final, the creation of a new wireless competitor with aggressive rural build requirements could mean increased competition in underserved portions of the United States but also presents an interesting tower opportunity for local providers.

Build-Out Commitments.  In a joint letter filed on May 20, 2019, T-Mobile and Sprint requested that the Commission approve its application subject to several commitments that the carriers pledged to meet, such as aggressive coverage and speed requirements over a three- and six-year timeline.  The Order adopts most of these commitments as conditions of the Commission’s approval.  First, New T-Mobile pledged, and the Commission adopted, that it will deploy a 5G network covering 97 percent of the U.S. population within three years of the closing of the transaction and 99 percent of the population within six years.  Additionally, New T-Mobile will be required to provide 5G service with speeds of at least 100 Mbps to 90 percent of the population and at least 50 Mbps to 99 percent of the population within six years.

Moreover, the Commission is requiring targeted build-out requirements in rural areas of the nation. New T-Mobile committed to deploying 5G services to cover 85 percent of rural Americans within three years.  Within six years, New T-Mobile is required to cover 90 percent of rural Americans, with two-thirds of rural Americans having access to speeds of at least 100 Mbps and 90 percent of rural Americans having access to speeds of at least 50 Mbps.

New T-Mobile also committed to deploying 5G service over mid-band frequencies to cover 75 percent of the population within three years of the transaction, and 88 percent within six years.  In rural areas, the combined company commits to covering 55 percent of the rural population with 5G service over mid-band frequencies within three years and 67 percent within six years.  The Commission notes that requiring New T-Mobile to build-out a certain amount of mid-band spectrum for 5G will increase the utilization of Sprint’s significant 2.5 GHz spectrum assets.

Other conditions imposed on the transaction include deploying 5G services over low-band frequencies to 97 percent of the population within three years and 99 percent of the population within six years.  In rural areas, the companies established benchmarks to cover 85 percent of rural American with 5G on low-band spectrum in three years and 90 percent in six years. New T-Mobile is also being held to its commitment to build an in-home broadband internet network with minimum speeds of 25/3 Mbps within six years, until they are providing in-home broadband service to 9.5 million customers simultaneously, which the Commission believes will benefit millions of households by enabling lower-cost or higher-quality services than they would otherwise enjoy.  Furthermore, the Commission adopted a pricing commitment condition that prohibits New T-Mobile from raising its rates for three years after the closing of the transaction.

Enforcement Requirements.  To ensure compliance with the above-mentioned conditions of the Commission’s approval, New T-Mobile has agreed to various methods of verification, and payments to the U.S. Treasury if they fail to meet any of the conditions.  Drive testing, overseen by an independent third-party, will be used to verify the coverage areas and speeds of New T-Mobile’s 5G service.  The final determination of whether the commitments have been met will be made by the Wireless Telecommunications Bureau (“WTB”). If New T-Mobile fails to meet any of its three-year goals, it will be subject to making a payment to the U.S. Treasury of a minimum of $10 million and a maximum of $250 million.  If they fail to meet their six-year commitments, the company will be required to make a maximum payment of $2.4 billion.  If they still have not met their commitments one year after a deadline, additional recurring payments may be required until all obligations have been fulfilled.

Boost Mobile Divestiture.  As part of a settlement with the DOJ to mitigate the anticompetitive concerns found in the DOJ’s review of the merger, Sprint and T-Mobile agreed to sell Sprint’s prepaid assets, which include Boost Mobile, the Sprint-branded prepaid business, and Virgin Mobile, to DISH, and to enter into a full MVNO agreement with DISH for at least seven years.  New T-Mobile pledged in its May 20, 2019 letter to reach a WTB-approved agreement for the sale of Boost Mobile with an independent buyer within 120 days from the closing of the transaction, or pay $3.5 million per day until they reach an agreement and/or obtain approval.  WTB must also approve the negotiated MVNO agreement. The Commission concluded that the divestiture of Boost Mobile and the associated conditions address its concerns of potential competitive harms raised by the proposed transaction. Moreover, the Commission found DISH to be a “credible” buyer with the experience and resources to maintain and expand Boost Mobile as a competitor in the mobile wireless marketplace. Furthermore, DISH’s acquisition of Boost Mobile is supplemented by its plans to build a nationwide 5G network using its AWS-4, Lower 700 MHz, and H Block licenses, of which the Commission also granted DISH extensions of time to complete construction and proposed potential buildout deadlines.

FCC’s Spectrum Screen Review. In its review of the potential competitive effects of the transaction, the Commission found that New T-Mobile would hold 240 MHz or more of spectrum in 356 Cellular Market Areas (“CMAs”) and a maximum of 361.7 MHz of spectrum across those local markets.  Accordingly, its combined spectrum holdings would trigger the Commission’s spectrum screen in nearly half of the nation’s CMAs, covering approximately 82 percent of the U.S. population.  Commissioner Geoffrey Starks noted in his dissenting statement that the combined spectrum would mean that “New T-Mobile would hold nearly three times as much spectrum per subscriber as Verizon and more than twice as much spectrum per subscriber as AT&T.”[2] However, ultimately, the Commission concluded that New T-Mobile’s spectrum aggregation will benefit the public interest because it would allow New T-Mobile to “deploy a highly robust nationwide 5G network”[3] and, therefore, declined to reject the merger on the basis of potential anticompetitive effects. The Commission reasoned that the proposed transaction will significantly increase New T-Mobile’s coverage, speed, and capacity, which should spur competition in coverage and quality with the other providers, and offset certain competitive harms.

Nationwide 5G Network As the primary reason for approving this noteworthy transaction, the Commission explains that the merger of the two nationwide wireless providers will bolster competition and deployment in 5G networks, particularly in rural markets, thereby advancing US leadership in 5G services.  Following the transaction, New T-Mobile’s improved network would be comparable to that of AT&T and Verizon, much greater than what Sprint or T-Mobile could accomplish individually.  More specifically, given T-Mobile’s low-band holdings, its standalone 5G network would likely have broad coverage, but would lack capacity due to lack of mid-band and high-band spectrum.  On the other hand, Sprint’s significant 2.5 GHz mid-band spectrum assets would have capacity but the low propagation characteristics would make coverage an issue for their standalone 5G network.  Therefore, the Commission concludes that combined spectrum will likely be put to more productive use than the standalone companies, of whom there are concerns of the ability to effectively deploy 5G or remain viable competitors.  Thus, the Commission finds that the combined capabilities of the two providers, subject to the conditions imposed on the transaction, are in the public interest because it will result in the deployment of a nationwide 5G network and likely elicit competitive responses from the other nationwide providers.

Rural 5G Coverage.  The Commission also notes that the conditions imposed on the transaction will promote and enhance 5G deployment in rural America and help close the digital divide.  As part of the transaction, New T-Mobile committed to buildout in rural parts of the nation meeting certain standards of coverage and speeds, which could not be otherwise accomplished by the standalone companies.  The Commission determines that the increased rural wireless deployment resulting from this arrangement will likely yield significant benefits in rural communities such as additional wireless competition, access to telehealth, and access to distance education.  Based on the rural-specific conditions and the enforceability of the conditions, the Commission concluded that the transaction will likely result in many public interest benefits to rural consumers.

Legal Challenges.  A group of attorneys general from 13 states and the District of Columbia filed a lawsuit to block the proposed merger on antitrust grounds, arguing that the merger will decrease competition and raise prices.  In addition to the District of Columbia, the states participating in the lawsuit are New York, California, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Oregon, Pennsylvania, Virginia, and Wisconsin.  Sprint and T-Mobile already reached settlements with a number of states that were formerly parties to the lawsuit, including Colorado, Mississippi, Nevada, and Texas. The trial, which began on December 9, 2019, is currently underway.

Taken in sum, the FCC and DOJ agreed to concessions offered by T-Mobile to essentially attempt to create a third “real” competitor to Verizon and AT&T, while propping up DISH to enter markets nationwide.  If T-Mobile and DISH live up to their obligations, which is subject to debate as to whether they actually will or can, this transaction will eventually have a major impact on rural deployments and competition.  While there is potential for significant opportunity for rural operators in the tower business, all rural carriers should continue to monitor this matter very closely.

If you have any questions, please contact Clare Andonov at [email protected], or Molly O’Conor at [email protected].


[1] Applications of T-Mobile US, Inc. and Sprint Corporation, Memorandum Opinion and Order, Declaratory Ruling, and Order of Proposed Modification, WT Docket No. 19-197, FCC 19-103 (Nov. 5, 2019) (“Order”).
[2] Id.,Statement of Commissioner Geoffrey Starks.
[3] Id.,¶97.