T-Mobile/MetroPCS Combination Will Mean Faster Deployment of LTE, FCC Finds

The order was released just before the Senate Commerce Committee’s FCC oversight hearing got under way, though the transaction was for the most part not on senators’ minds, based on the questions they asked. (See separate report in this issue.) “This is good news for our mobile economy and mobile consumers,” FCC Chairman Julius Genachowski said at the start of his testimony.

Sen. Richard Blumenthal, D-Conn., questioned Genachowski on why the deal was handled in a bureau-level order. “Can you tell the committee, this is a deal involving 40 million subscribers, billions of dollars, are you aware of any transaction of similar size that has been approved at the bureau level rather than being circulated for a vote by the commission,” Blumenthal asked. “There have been large transactions,” Genachowski responded.

"As large as this one?” Blumenthal asked. “My information is that none of this size, in terms of dollars and impact on consumers, has ever been approved by the bureau as opposed to the commission.” Genachowski said the order “may be the largest,” though he cited a September 2011 order approving Level 3’s buy of Global Crossing as another big transaction approved without a commission vote. “Where there are no petitions to deny, no issues of commission policy, these are typically done at the bureau level and this was consistent with the precedent in the area,” Genachowski said. MetroPCS shareholders will get $1.5 billion in cash and 26 percent ownership of the new company (http://xrl.us/bnshqg) from T-Mobile parent Deutsche Telekom, under the deal unveiled in October. Level 3 agreed to buy Global Crossing in an all-stock transaction worth $3 billion, including $1.1 billion in Global Crossing debt.

The transaction “likely would result in meaningful public interest benefits that support approval of the proposed transaction,” the order said. “We find that the Applicants have demonstrated that many of the claimed benefits are feasible and likely to be put into effect soon after the proposed transaction is concluded.” The bureaus stressed that together the two carriers will be able to deploy LTE faster. Allowing the merger “would provide for a broader, deeper, and faster LTE deployment than either company could accomplish on its own,” the order said (http://bit.ly/14TqC5q).

"Post-transaction,” the carrier will “continue to be the smallest service provider of the four nationwide providers” with only 42 million subscribers, compared to some 115 million for Verizon Wireless, 106 million for AT&T and 56 million for Sprint Nextel, the order noted. “We find that incumbent service providers could readily reposition their service offerings in response to any potential quality adjusted unilateral price increase on the part of Newco.” That’s the order’s term of art for the combined carrier. “Given the relative spectrum positions and market shares of other service providers vis-à-vis Newco in the mainland United States, we find it unlikely that Newco would have the ability to unilaterally raise price or otherwise harm competition at the national level,” the order said.

The bureaus said that in a competitive analysis, staff identified 19 markets that raised potential competitive concerns. Two Florida markets in particular raised concerns: Miami-Fort Lauderdale and Monroe. The bureaus redacted most of the details from the order describing why the new carrier would hold a dominant position in both markets. “We find with respect to these two markets that any possible competitive harms are far outweighed by the public interest benefits of this transaction,” the order said. “In the remaining 17 non-rural markets identified, Newco’s market share would be less than 30 percent post-transaction, and there would be at least three other service providers with a substantial market presence."

The order rejected complaints by CWA and the Greenlining Institute that the deal would mean job loss. “CWA contends that the proposed transaction could directly result in the loss of as many as 10,000 jobs,” the order said. “We find that the record suggests that the proposed transaction would enhance the competitiveness of the combined provider, as the fourth largest nationwide service provider by allowing it to strengthen its network and expand its product line, thereby enabling increased employment and bolstering the long-term viability of the combined provider."

CWA said the FCC should hold T-Mobile to statements that it won’t move call centers offshore or reduce employment levels at those centers. “We expect T-Mobile USA to keep its word that not only will the company grow and retain call center jobs here in the United States, but that it will do the same for network technician positions as well,” CWA said in a news release. “T-Mobile has now said publicly that the ’synergies model’ they shared with the Federal Communications Commission assumes no layoffs, and we'll hold them to that."

The Greenlining Institute took a parting shot. “This deal has serious potential impacts on the most vulnerable communities,” said Policy Director Stephanie Chen in a news release. “It’s worrisome that a matter of such importance was decided at the bureau level, without a vote by the full commission. We are troubled that the commission took a pass on fully evaluating a transaction that could result in inferior service quality for low-income consumers, reduce employment and franchise opportunities, and reduce or eliminate T-Mobile’s commitments to diversity.” But other comments were positive.

NAB was pleased the FCC approved the order. “We applaud the wireless industry’s efforts to rationalize its substantial spectrum holdings, and this deal is another market-based step in the process of meeting the demand for data,” said Executive Vice President Rick Kaplan, former chief of the bureau. Public Knowledge also saw the order as positive. “To counter the power of AT&T and Verizon, the market needs more strong, national competitors, and this action will allow T-Mobile to improve its network and strengthen its position,” said PK Staff Attorney John Bergmayer. “It would be better if the wireless market was not so distorted that the loss of a competitor is a win for competition. Nevertheless, that is the case, and given these facts this particular merger is in the public interest."

The Competitive Carriers Association and the Rural Telecommunications Group also approved of the order. “The longer the wireless industry continues to be dominated by a duopoly, the harder it will become for competitive carriers to get access to spectrum, devices, other networks, and virtually every other input needed to run their businesses,” said CCA President Steve Berry. “T-Mobile has been willing to work with smaller carriers, and I am confident that it will continue to do so now with its increased resources."

Free State Foundation President Randolph May noted he’s often been critical of the FCC’s deal approval process. “In this instance, the Commission deserves credit for not imposing conditions on its approval of the merger, even though it was asked to impose extraneous job protection provisions,” May said in a written statement. “And it deserves credit for acting in a somewhat timely fashion, at least by the Commission’s standards. In this instance, there was certainly no reason for the Commission to second-guess the business judgment of T-Mobile and MetroPCS that, together, they would comprise a strong national wireless competitor and would be in a position to facilitate the deployment of next-generation mobile broadband facilities. In today’s current dynamic mobile market, the Commission did the right thing in approving the merger application."

"The FCC’s approval marks another significant milestone in bringing our two companies together, and we appreciate the ... timely approval,” said T-Mobile CEO John Legere. “Our combined company will have the products, spectrum, scale and resources to shake up this industry and deliver an entirely new wireless experience.”