Craig Moffett, founder of MoffettNathanson LLC, in an interview on Bloomberg Television, discussed about Sprint Corporation (NYSE:S)‘s decision to end talks to acquire T-Mobile US Inc (NYSE:TMUS) due to regulatory concerns.
The main concern was that Washington will not accept a duopoly or even a three-way competition, as the administration demands a four-way competition at least.
“[…] Sprint faces a very, very tough road now. We never thought this deal had any chance to happen so I can’t say I am terribly surprised, but it seems like, in the run-up to try to do the transaction with T-mobile, Sprint all but abandoned its plan B, which is run the business […],” Moffett said.
Given the many things that need to be corrected, Moffett says that it will be a long road for Sprint Corporation (NYSE:S). In terms of market regulators, the question, according to Moffett, is choosing between fragmentation and consolidation between carriers. When consolidation, such as the one between Sprint Corporation (NYSE:S) and T-Mobile US Inc (NYSE:TMUS), leads to higher prices, the FCC is bound to reject the deal.
“The evidence suggests that carriers are pouring capital into their networks, at a pretty good pace, irrespective of the fact that there are four instead of three carriers. With that being the case, the regulators are saying ‘look, there is enough capital going into these networks, what we really need to do is, protect consumer prices and choice,’ […], ” Moffett added.
The breakdown of the deal could lead to lower prices, although possibly not demonstrably better service quality from Sprint Corporation (NYSE:S). On the other hand, what Sprint Corporation (NYSE:S) and T-Mobile US Inc (NYSE:TMUS) need is to have limited participation from AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) so as to have a spectrum. The FCC may be attempting to provide something back to the carriers who are not named AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) because when setting up the rules for the auction, the FCC carved out a portion of the spectrum for these other carriers.
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