California Regulators Say T-Mobile Lied To Gain Sprint Merger Approval

from the synergies dept

To gain regulatory approval for its $26 billion merger with Sprint, T-Mobile made numerous promises. One was that the deal would immediately create jobs (there’ve been 5,000 layoffs so far). Another was that the company would work closely with Dish Network to help them build a fourth wireless network that would replace Sprint, theoretically “fixing” the reduction in competition the deal created. As predicted, that plan isn’t working out well either.

Dish and T-Mobile have been fighting like cats and dogs since the deal was finalized. Instead of helping Dish Network grow, T-Mobile has been poaching Dish customers with promotions specifically targeting Dish. T-Mobile also promised to keep its older 3G, CDMA network operational for Dish to use until 2023 (giving it time to build out its own 5G network), but Dish has been accusing T-Mobile of turning that network off on January 1, 2022, far earlier than originally promised. Dish argues that millions of its Boost Mobile branded wireless subscribers could lose access to service in the new year.

This week California regulators sided with Dish and effectively accused T-Mobile of lying to gain merger approval:

“T-Mobile’s false and misleading statements under oath indicated, among other things, that T-Mobile would make its CDMA network “available to Boost customers until they were migrated to Dish Network Corporation’s LTE or 5G services” and that Dish would have up to three years to complete the migration, the ruling said. The CPUC can impose penalties against T-Mobile of up to $100,000 for each offense.”

In short Dish says T-Mobile simply isn’t living up to its merger commitments. In turn, a T-Mobile blog post effectively accuses Dish is just making everything up, and insists Dish is simply too cheap to give its wireless users discounted 4G and 5G phones to avoid problems when T-Mobile’s 3G network shuts down. California regulators, including Administrative Law Judge Karl Bemesderfer and a CPUC commissioner, appear inclined to believe Dish Network based on their review of T-Mobile’s pre-merger promises:

“Their ruling said there is “a reasonable basis to conclude that T-Mobile… misrepresented material facts and misled the commission” with statements under oath. The ruling said that when the CPUC allowed the merger, it “relied on the specific false statements, omissions, and/or misleading assurances T-Mobile gave regarding its use of [Sprint’s] PCS spectrum and its repeated references to a three-year customer migration period without a degraded experience… it appears that these false statements, omissions and/or misleading assurances and the related time references were intended to induce the commission to approve the merger.”

Again, simply blocking this deal and finding some other way to prop up Sprint (without eliminating a direct competitor) was always the simpler, cleaner, option. Instead, the Trump DOJ and FCC constructed this elaborate and likely doomed alternative which (ironically for a party with a purportedly “hands off” and “government never works” mindset), involves having government try to nanny a cumbersome arrangement to fruition for the better part of a decade. With Dish consistently losing both wireless and TV subscribers, it’s not clear Dish will even remain viable enough for that to work.

Dish is a company with no experience in wireless, with a history of being cheap and difficult to work with, that has to not only build out a world class 5G network in a few years, but has to make a network so popular with consumers it successfully leeches subscribers from AT&T, Verizon, and T-Mobile. And it has to do it without financially imploding as it continues to hemorrhage wireless and TV subscribers. And US regulators, not exactly the model of consistent oversight, would need to hold all companies involved meaningfully accountable should they miss build-out metrics.

I still tend to think the entire deal was performative theater providing flimsy justification to approval a deal experts made very clear would reduce competition, raise prices, and harm jobs. It was pushed by folks whose only real interest was reducing competition so the remaining three players could inevitably jack up prices. And while I do think Dish is making a good show of it (because they have to), I still tend to think this could end with Dish selling its trove of valuable spectrum (once deal restrictions end), making tens of billions, then throwing a few peanuts at any flimsy regulatory penalties on their way to the exit.

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Companies: dish, sprint, t-mobile

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Comments on “California Regulators Say T-Mobile Lied To Gain Sprint Merger Approval”

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James Burkhardt (profile) says:

I've said it before, I'll say it again

T-mobile has admitted it plans to shave time off the merger agreement. It has admitted it lied when it said, under oath, that 5g rollouts wouldn’t impact CDMA service. It wants to claim Dish has no basis for its claims, but T-mobile’s blog explicitly states that it intends to closedown cdma before the end of 2022, at best shaving 3 months off the deadline, but just as easily could be 14 months before the deadline. The blog post also explicitly states this is for 4g/5g rollouts.

Mega mergers need poison pill clauses. If you lie during the merger process and its discovered, or if you fail to meet conditions for a merger, the merger should be undone. I know it’ll be ruinous for everyone, investor, worker, or bystander. Thats why its a poison pill.

If the company can’t risk it, don’t do a merger. If the DOJ can’t accept that ruin, don’t let the merger happen. Otherwise, "The CPUC can impose penalties against T-Mobile of up to $100,000 for each offense." is meaningless. "I fine you a million dollars for telling 10 lies, and then you get to keep your ill-gotten gains" is a big reason regulation is so feckless, it just becomes a cost of doing business. You want anti-trust? Shatter mega mergers. Investors will start avoiding them, start avoiding the CEOs who hype them, and we might see a pivot away from growth by merger as the grift du jour.

Koby (profile) says:

Re: I've said it before, I'll say it again

Mega mergers need poison pill clauses.

As a precondition of a merger, companies should be required to create a plan to undo the merger, if ordered by a court. Perhaps an attempted merger could result in financial disaster for investors, but it need not be so for everyone else. Hire back the workers, put back the customers, and restore competition.

James Burkhardt (profile) says:

Re: Re: I've said it before, I'll say it again

Not a bad idea, im just not sure it would handle the issues effectively.

Perhaps an attempted merger could result in financial disaster for investors, but it need not be so for everyone else

The financial hit is expected to be threefold. The first is a hit to the stock price as confidence collapses. This shouldn’t affect everyone, but the ability of a company to gain vital short term funding (Terms on purchases, payroll funding) and attract business will be significantly impacted. Who wants to sign a phone contract with a company going under?

The second is in the actual impact on the business. Splitting assets, tossing out a bunch of new branding, paying to restore old branding, reopening closed locations. Expensive customer service due to heavy customer confusion. Lost business as customers move away. The confusion alone could cripple both businesses outright and likely will harm workers no matter what as revenue drops.

The third is the issue that it doesn’t discharge the debt. See, we can’t force individuals to rebuy the stock they sold for the merger to happen. That’s what a merger is, the purchase of outstanding stock so one company fully owns the other. We can un wind the combined entity, but that doesn’t pay off loans taken to buy that stock, and now they face just as much debt without the market share they expected to pay the debt off with. This could easily snowball into complete collapse of the org.

The issues faced here aren’t likely manageable unless they just maintain the companies separately and don’t merge. Its a question of market forces, and the complexity of a company this large with this many customers, not merely a lack of foresight.

Hire back the workers

Who months later should all have new jobs. If the workers are available over a year after the merger, the crippled economy isn’t going to support the workforce doubling. And if the experienced workers do have jobs, hiring a second workforce isn’t going to be easy, particularly given the financial squeeze both entities will be under. Not to mention the inflationary pressures such an event is likely to cause.

put back the customers

Ignoring that customers might, after forcibly being moved to a new company twice, likely to take the business elsewhere

restore competition.

Which only works if the orgs don’t collapse in the split.

A very surface analysis. You’ve ignored likely snowball effects of a collapsing stock price, and ripple effects on the larger economy to a sudden significant increase in staffing needs. Definitely got me thinking though.

sumgai (profile) says:

Re: Re: I've said it before, I'll say it again

Koby, you can think when you wish to. As JB pointed out below, there are some rough spots, but your only crime here was to over-simplify.

Here’s a more effective idea: instead of rolling everything back, the government should take the promise-breakers into court. The government accuses the company of lying, proves the point, and wins… now what happens?

Easy – the court (which is part of the government) takes over and puts the company into receivership, just the same as if it were financially insolvent. Only now, the appointed receiver is tasked with finding and getting court approval for a new leadership team. If this new team can prove itself capable, then the court awards them stewardship in perpetuity, subject to the normal rules of business (hiring and firing, etc.).

But the catch here is, they are only stewards, not owners – that job falls to the employees at the moment. There’s not much that can beat an employee-owned organization for motivated performance, to be sure.

And to top it off, the failing execs? They get bupkis – no golden parachute(s), nada. They can keep what they had in the bank at the time the court action started, and that’s it. Even more than the above, this should highly motivate executives to keep it honest.

Sadly, California will spend way more than $100,000 in time and effort to make T-Mobile pay the fine(s). The system needs to stop thinking in terms of loss-of-money as a punishment, and start thinking in terms of loss-of-stature for the perpetrator(s). Things like prison, or at least banishment from ever again holding a similar executive position, those would be much stronger deterrents, I should think.

James Burkhardt (profile) says:

Re: Re: Re: I've said it before, I'll say it again

The system needs to stop thinking in terms of loss-of-money as a punishment, and start thinking in terms of loss-of-stature for the perpetrator(s)

That is just scapegoating if you get caught, IMO. My normal response is to say that we need to treat law and regulation breaking with divestiture of revenues on top of fines, which should be based on the revenue forfeited. Asset forfeiture for illegally obtained goods. Don’t use the bullshit civil forfeiture. Criminal forfeiture.

The issue is actually determining what are illegal gains in a merger. And of course, if we let the merger stand no fine or imprisoning of executives affects the math for shareholders with the profits market consolidation can bring. That’s why I recommended the destructive act of unwinding. You need to ruin the very idea of lying during a merger. Make it so costly, so no amount of revenue justifies the risk.

Anonymous Coward says:

Re: I've said it before, I'll say it again

If you lie during the merger process and its discovered, or if you fail to meet conditions for a merger, the merger should be undone.

What world do you live in? You act as if it’s some kind of surprise that they could lie, but even our elected representatives can’t be that stupid. They know full well how phony promises work. So they go through the motions with T-Mobile, and act shocked when the promises are broken, and in unrelated news maybe they’ll work for T-Mobile after leaving office.

James Burkhardt (profile) says:

Re: Re: I've said it before, I'll say it again

I act as though we live in a country of laws and believe that lying to a regulatory body about the consequences of a merger to gain approval for that merger is a fraud on the public. CA seems to have little recourse in this case, but has highlighted that the statements made by Tmobile affected approval and were in violation of the law. My point was that penalties are so minor compared to gains that even in a case like this where regulatory bodies call out that material lies were made, they still can actually do nothing, the law provides an insufficient remedy.

Given that a large issue is that breaking the law is merely a cost of doing business for many large corps, the poison pill clause, which would need to be written into a functional standard that can be attached to a merger, is intended to be so ruinous that the gains are not worth the risk of overstating or bloviating or lying or posing conditions you can’t or wont meet.

You act like I’m not making this point about merger claims regulators have already ruled were made in bad faith.

Anonymous Coward says:

Re: I've said it before, I'll say it again

5G itself needs a poison pill clause, particularly when it (phone hardware and mandatory network connection) is foisted upon the public in its expensive, awful, and not even half-baked state. (Hell i am not sure they had got around to putting it in the oven yet, at least in the States.)

Anonymous Coward says:

I never even see it mentioned, but 2G still exists but apparently T-Mob is phasing that out along with the 3G? You know, if you just need calls connected, 5G is a load of hyena offal to force people to use.

I recall plenty of times, when i was a Big Magenta customer, where my data would be dropped directly from "4G" to 2G. But suddenly they are in a hurry to get rid of both. I smell murderous data restrictions and charges coming down the pike.

R.H. (profile) says:

Re: Re:

T-Mobile is only planning on supporting devices that use Voice-over-LTE (VoLTE) for voice services starting on January 1st, 2022. This is based on the notifications I’ve been getting since the merger since one of the phones on my plan doesn’t support VoLTE and therefore needs to be replaced by the end of the year.
Effectively, that means that all voice services will use data (but not be charged as such). Both Verizon and AT&T also support VoLTE (I even think Verizon was first), they just don’t require it yet.

Lostinlodos (profile) says:

From bad to worse

This merger was a disaster from the start.
Even before it was completed you have the T-Mobile brand diluted and sullied by the Sprint name.
I’ll never understand why they wanted that! When you buy a rotten piece of road kill and shelve it next to prime rib it taints the rib.

And Dish? Dish is the playground bully. They’re not “difficult to work with”: they’re impossible. They’re on on a 90mph ride to hell.
Nobody want’s their current services. Forget about new ones.

Bad all around.

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