Analysts at New Street Research think they’ve unraveled the mystery as to why the Federal Communications Commission’s order on the proposed T-Mobile/Sprint $26.5 billion merger hasn’t yet emerged, and they’re pinning the hold-up on Commissioner Brendan Carr.
FCC Chairman Ajit Pai announced on August 14 that he was circulating an item for the other commissioners to consider, with his recommendation being to approve the deal with conditions. The two fellow Republican commissioners—Carr and Michael O’Rielly—are widely expected to vote with him, with Carr publicly stating his intent.
“We would have expected a speedy vote by the three Republicans to limit the time for the Democrats to draft their dissent and to assure the item got minimum publicity,” due to its publication in August when much of D.C. and the media was on vacation, wrote the New Street analyst team led by Blair Levin in a note to investors on Monday. “Instead, nothing happened. As we are writing this, the item almost certainly still lacks three votes.”
The paper trail led the analysts to single out Carr, whose office was involved in nine meetings related to the merger, with the latest being September 18, since Pai announced the circulation of the item. There was one ex parte filed describing a meeting in which company executives talked with commissioners, and two ex partes in which lawyers talked to Chief of Staff Matthew Perry and other staff, but no ex partes from the offices of Pai and O’Rielly.
The question as to why Carr might be holding up the order is a harder one to answer, according to the analysts. Ex partes by their nature tend to be vague. Stated the September 18 filing (PDF): “During the calls, the representatives of T-Mobile discussed several issues addressed in the Applicants’ previous submissions regarding their network and economic modeling.”
Still, the analysts took a stab at guessing. The odds that Carr is considering voting against the deal are “somewhere between zero and a number that begins with zero,” they said.
“We think the fundamental problem is that the FCC majority verbally approved a deal [on May 20] that the DoJ and states representing a majority of the population have characterized as illegal under the Clayton Act,” the analysts wrote. “In that light, the FCC order has to thread the needle of justifying the views of the majority, while also helping the companies at trial.”
FierceWireless reached out to Carr’s office for comment, but did not immediately hear back.
More than a dozen states are opposed to the deal and are involved in a suit to block it; a trial is set to get underway December 9. The analysts said it’s been their view for some time that the FCC order will be less important to the outcome of the trial than investors generally believe, and the delay in finalizing the item has only strengthened their conviction of that view.
They also noted that the states are likely to present evidence suggesting that Dish Network is not likely to actually build a fourth competitor to replace the competition lost by Sprint leaving the market. They anticipate that Dish will want to strengthen the counter-argument to that by announcing various deals that show it is “all in” to build and operate a network.
Such deals could include agreements related to construction, financing, enterprise customers and operations. “We expect that sometime before trial, DISH will announce some agreements in the area of construction,” they said. “We think it would improve the odds for success for the companies at trial if other deals were announced.”
In a subsequent note to investors, Levin said one of the issues in the case likely will involve Sprint’s economic difficulties. But, as antitrust attorney Matthew Cantor of Constantine and Cannon noted in a recent conference call with the investment firm, there is no such thing as a weakened firm defense under antitrust laws. To qualify as a “failing firm,” the company has to file for bankruptcy with no reasonable prospect of reorganization, and Sprint hasn’t done that; therefore, it doesn’t qualify as a failing firm under antitrust laws.