UPDATE The Department of Justice’s (DoJ) spectrum warning when it approved the T-Mobile US’ (NASDAQ: TMUS) $4.4 billion acquisition of UScellular (NYSE: USM) could indicate the DoJ “may be more troubled than we anticipated, with the prospect of [EchoStar] (NASDAQ: SATS) selling its spectrum to the Big Three wireless carriers,” notes New Street Research (NSR) Policy Advisor Blair Levin.
In her decision, Assistant Attorney General Gail Slater of the Justice Department’s Antitrust Division said, “With respect to the potential impact on consumers, for years, Americans have witnessed the too-familiar pattern of local or regional companies that discern and cater to their customers’ needs vanishing in favor of the ‘one size fits all’ approach of national brands.”
Slater said the Department’s investigation “made clear that we stand at a pivotal moment for the wireless industry. The transaction comes near the tail end of a decades-long trend toward consolidation-by-acquisition that has now left most consumers with meaningful choices among just the ‘Big 3’ national carriers,” Slater wrote.
The Big 3 national carriers control more than 80 percent of the wireless spectrum in the county, according to the DoJ.
NSR believes this statement is most important to investors: “It is of concern to the United States that continued spectrum aggregation by the Big 3 threatens to impede the path for a fourth national player to emerge and challenge the entrenched incumbents with new and innovative offerings. Where future spectrum consolidation transactions threaten this path, the Antitrust Division stands ready to investigate and, if warranted by the facts and evidence, use its enforcement power to protect competition and American consumers.”
NSR says the DoJ and the FCC don’t appear to be on the same page concerning competition in the wireless sector. He noted the FCC expressed no spectrum consolidation misgivings in its approval. “We reject the opponents’ implicit assumption that a reduction in the number of competitors from four to three is dispositive,” the FCC stated in its approval of the transaction. “Our analysis instead turns on a fact-specific assessment of the competitive landscape, including market entry and exit conditions, consumer behavior, network investment incentives, and other indicia of market performance. Moreover, we are charged with managing spectrum—a scarce and valuable public resource—in a manner that promotes its highest and best use.”
While the DoJ statement does not mention the FCC, Levin writes, “it appears that both the long-term civil servants in the Anti-Trust Division and the new leadership have concerns about the way that the FCC is currently making it more difficult for SATS to succeed in building out a fourth network.” He notes that if EchoStar Board Chair and co-founder and DISH Network co-founder Charlie Ergen does decide to sell, “we think the DOJ will have no choice but to accept that the only bidders will be the Big Three.”
In the short term, NSR believes the DoJ language gives SATS political capital on the Hill and with the White House. For the longer-term value of the assets for investors, “the DoJ statement raises concerns about it allowing the financially optimal deal in terms of spectrum sales. Still, we think the odds favor SATS ultimately being able to sell its spectrum to the highest bidder,” Levin writes.
By Leslie Stimson, Inside Towers Washington Bureau Chief
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