Sprint Corp. (S) and T-Mobile (TMUS) no doubt have a list of reasons why the Federal Communications Commission and the Department of Justice should approve their merger, from the changing field of wireless competitors to voluntary concessions that would address the public good if the carriers combined.
Regulators are likely to be hung up on some simple math, however. Four national wireless carriers minus one national carrier equals three, which Washington has viewed as insufficient competition. The Obama DOJ sued to block AT&T Inc.'s (T) purchase of T-Mobile in 2011 and regulators pushed back against Sprint's prior efforts to merge with T-Mobile in 2014 to prevent such consolidation. Bloomberg reportedly recently that DoJ staffers have not changed their views.
"Right now we're more pessimistic," Fitch Ratings analyst Bill Densmore said regarding the likelihood that the merger would pass a regulatory review. The telecoms declined to comment.
To be sure, Sprint Chairman Masayoshi Son could offer Washington a list of concessions.
A merged Sprint and T-Mobile would have a massive amount of wireless spectrum following a merger, and could offer to sell licenses to assuage concerns about the concentration of mobile capacity with one carrier.
But to whom would they sell? Divesting licenses to AT&T and Verizon Communications Inc. (VZ) would only make the two largest wireless carriers stronger.
Dish Network Corp. (DISH) has spent billions to buy up wireless licenses over the last decade or so, and is a potential buyer. While Dish has told the FCC that it plans to build a 5g wireless network, that network is unbuilt. Dish could hardly be expected to fill the vacuum created by the elimination of a national wireless competitors.
Sprint and T-Mobile could also offer a to provide capacity on their network to a cable or tech company to create a mobile virtual network operator, or MVNO. After all, Sprint already has a dormant resale deal with Comcast Corp. (CMCSA) .
"The MVNO is something that European regulators have used when markets have consolidated from four to three," Densemore said, although he suggested the track record overseas might not compel U.S. regulators to use the structure.
"What they've seen in Europe is that the market has become so competitive that operators are somewhat disincented to invest in 5g infrastructure," he said, referring to the next generation of wireless technology. "There is a delicate balance between creating the appropriate competitive environment with lower consumer prices and encouraging continued investments in technology," Densmore said.
Sprint and T-Mobile could also pledge to build out their networks in rural markets, and serve a public good by bringing wireless broadband to under-served markets.
The telecoms cannot get around the fact that a merger would remove a national wireless carrier from the market, however. "Clearly if you go from our to three you have less of a competitive environment," Densmore said.
Sprint and T-Mobile could argue that the wireless market is more competitive than it was just a few years ago. Comcast and Charter Communications Inc. (CHTR) have begun to resell Verizon Communications Inc.'s (VZ) wireless service. Dish hopes to build a 5g network.
In the carriers' favor, the Trump White House is something of a wild card. The administration has not had a litmus test telecom merger review, and Department of Justice antitrust chief Makan Delrahim was only confirmed in late September.
Even if the outlook is murky under Trump, it is more hospitable than a Clinton White House would have been. In a Democratic administration, a merger of national wireless carriers would nearly certainly be verboten.
The politics surrounding a merger review could become less favorable to Sprint and T-Mobile if Democrats gain power in the mid-term elections. "If you get more Democrats they could potentially push against it," Densmore said. "To what extent that can be effective it is still hard to say."
The greatest obstacle to a deal may be that the DOJ's rejection of AT&T's merger with T-Mobile back in 2011 undoubtedly led to a more competitive wireless industry. T-Mobile was a fourth-placed weakling then, and has since become a strong challenger.
It would be difficult for regulators to allow the field to consolidate, unless they believe that Sprint faces a dim future as an independent carrier. Densmore suggested that Sprint could face "a very tough hill to climb" if it does not merge, which could make the outcome in Washington more difficult to handicap. "If the regulators are looking out three or four years and trying to predict the future a bit," Densmore said, "it gets interesting."