Tactical Rabbit Analysis & Forecast – July 21, 2014
We have a high degree of confidence that the United States Government (USG) will not approve a potential merger between the telecommunications companies T-Mobile and Sprint. We base our analytical forecast on two primary factors. First, from a national security and cyber security standpoint, the USG will not allow this merger to take place because it would make Deutsche Telekom, a foreign-owned firm, the largest owner of the U.S. Telecommunications spectrum. Having the majority of the U.S. telecommunications spectrum controlled by a foreign-owned company would represent potential vulnerabilities to strategic USG national security interests. The second factor is the numerous statements and policy positions of key players within the USG that would be involved in making a decision on the T-Mobile and Sprint merger. Taken together, these statements from this small group of key decision-makers indicate a clear trend towards non-approval of a merger such as the proposed T-Mobile/Sprint deal.
Key Information Supporting Tactical Rabbit’s Analysis & Forecast
A profile analysis of the key members of the U.S. Department of Justice (DOJ)’s Anti-Trust Division and the Chairman of the Federal Communications Commission (FCC) indicates that they would not be supportive of a merger between T-Mobile and Sprint. While some lower ranking members of the DOJ’s Anti-Trust Division have a private practice history of supporting such mergers, William J. Baer, the Assistant Attorney General for the DOJ’s Anti-Trust Division, stated in June 2014 that it would be difficult for the Justice Department to approve a merger among any of the top four wireless companies. Further, in early July 2014 the Chairman of the FCC, FNU Wheelers, told the CEOs of T-Mobile and Sprint that he was highly skeptical of the potential bid by Sprint to acquire T-Mobile.
Background Information Pertinent to this Scenario
“Sprint shares have risen 8 percent since Dec. 12 on speculation that it was looking to acquire T-Mobile from Deutsche Telekom AG.”
“Deutsche Telekom AG wants a breakup fee of more than $1 billion and promises that T-Mobile’s brand and some of its management team would remain after a merger.”
“The demands are aimed at limiting the fallout in the event regulators shoot down a combination of Sprint, the third-largest U.S. wireless carrier, and T-Mobile, the fourth largest.”
“The carriers are working toward securing a deal in the near term, the people said. Given the perceived regulatory opposition, the companies are weighing whether it is worth trying a deal now or waiting until a government auction of wireless airwaves expected to take place in 2015 or under a different administration.”
“A key factor on how to proceed will come next week when the Federal Communications Commission plans to vote on a modification of the rules governing how much spectrum carriers can hold.”
“Under rules proposed by the FCC, more of Sprint’s airwaves would be counted in the agency’s so-called spectrum screen than before, meaning the carrier could have a more difficult time in the future doing deals that expand its holdings.”
“If Sprint Corp acquires T-Mobile US Inc., it could save up to $6.6 billion on network, equipment and operating costs, but it will have to slash its prices to match the target company’s steep discounts.”
“Son has argued to U.S. regulators that a merger would give the companies leverage to compete against AT&T, Inc. and Verizon Communications, Inc.”
“The acquisition, which would need federal approval, may happen early this summer. DOJ could still block this merger on anti-competitive grounds, something we know it has done in the past when AT&T tried to buy out the company in 2011.”
Tactical Rabbit Methodology
Tactical Rabbit utilized financial intelligence, open source intelligence, human intelligence and cyber intelligence, coupled with our proprietary analytical and collection methods, to collect and analyze the intelligence that supported our analysis/forecast on this subject. Specifically, for this report the following sources were mined and examined: behavior analysis, social media analysis, public speaking analysis, SEC filing language analysis, legal track records, news/media sources, and Department of Justice Anti-Trust Division and Federal Communications Commission records.