Report: Sprint hits DOJ resistance to a deal with T-Mobile

Sprint (NYSE:S) CEO Dan Hesse and SoftBank CEO Masayoshi Son met recently with antitrust officials at the Department of Justice to pitch the idea of a merger between Sprint and T-Mobile US (NYSE:TMUS) but encountered skepticism and resistance, according to a Wall Street Journal report.

The report, citing unnamed sources, said the top Sprint executives met with the DOJ earlier this month and department officials indicated at the meeting that a deal could face regulatory hurdles, which many analysts have warned since speculation of such a deal surfaced in December. Bloomberg also reported on the meeting and similarly reported on the resistance Sprint faced.

Sprint spokesman Scott Sloat declined to comment, and, according to Bloomberg, so did representatives from the DOJ, SoftBank and T-Mobile.

According to Bloomberg, the Sprint executives argued that Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T) won't face significant competition unless a merger is approved. The Journal said the thinking is that even if the industry may be going through a competitive period sparked by T-Mobile's aggressive moves in the market, it isn't likely to last.

As the Journal noted, antitrust officials at the Justice Department, who review deals for possible harm to competition, often have meetings with executives ahead of mergers and acquisitions, but usually do not tip their hands too strongly on how they view potential combinations before formal reviews.

The Journal report said that Son, who has been the driving force behind the deal, remains undeterred. Some of the people briefed on the meeting came away with different impressions of how much the DOJ might be opposed to a deal.

Sprint parent SoftBank has engaged in direct talks with T-Mobile parent Deutsche Telekom to try to iron out a deal between Sprint and T-Mobile, according to a recent Bloomberg report. Earlier this month the Journal reported that at least two banks have provided Sprint with proposals for financing a takeover of T-Mobile. However, any formal offer could still be months away.

T-Mobile CEO John Legere recently said a combination with Sprint would allow the companies to better compete with what he called the "duopoly" of Verizon and AT&T. Legere said that there are "multiple versions of consolidation in the industry that are possible ways for us to grow." He added that "from a standpoint of companies consolidating to get better scale, I'm open to looking at options."

Regulators at both the FCC and Department of Justice have indicated that they would prefer to maintain four national operators. T-Mobile seems to have revived itself with lower pricing, aggressive "uncarrier" marketing and plans to pay customers $650 to cover their early termination fees if they switch and trade in their devices, for example. Further, it seems unlikely the FCC would bless a merger that would reshape the industry before crucial spectrum auctions scheduled to start next year.

For more:
- see this WSJ article (sub. req.)
- see this Bloomberg article

Related Articles:
T-Mobile's Legere: A merger with Sprint would help fight 'duopoly'
Report: SoftBank starts direct talks with DT on Sprint/T-Mobile deal
Report: Sprint has backing from 2 banks for T-Mobile bid
T-Mobile's Legere doesn't rule out Sprint deal, but also casts doubt on it
Analysts: A Sprint/T-Mobile deal would face an uphill battle with regulators
Report: Sprint is considering a bid for T-Mobile

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