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April 3, 2020
The newly merged T-Mobile company has barely seen daylight, but it has already irritated one regulator enough that the risk of a lawsuit hovers on the horizon.
As T-Mobile proclaimed the beginning of a new era, the California Public Utility Commission (CPUC) issued an order to the management team. The order stated T-Mobile and Sprint could not merge their operations until the CPUC had officially greenlit the transaction on April 16. This would appear to be little more than a bureaucratic tick-box exercise, as a local judge recently recommended the CPUC approve the deal.
However, in announcing the completion of the deal and beginning the integration process under new CEO Mike Sievert, the new T-Mobile team seemingly believes this procedure is not worth waiting for. Or, it implies the approval is not necessary.
The order from the CPUS states:
Public Utilities Code Section 854(a) states in relevant part that “[n]o person or corporation, whether or not organized under the laws of this state, shall merge, acquire, or control … either directly or indirectly, any public utility organized and doing business in this state without first securing authorization to do so from the commission.” Both Joint Applicants, T-Mobile and Sprint, have California subsidiaries that are public utility telephone corporations under state law, and subject to the jurisdiction of this agency. The merger of the companies’ operations in California is therefore subject to CPUC approval. Accordingly, Joint Applicants shall not begin merger of their California operations until after the CPUC issues a final decision on the pending applications.
In short, do not complete the merger without our approval.
As with all corporate announcements, the new release proclaiming the completion of the T-Mobile US and Sprint merger came with fine print detailing the risks which might cause plans to alter. The below extract is an interesting one:
…the risk of litigation or regulatory actions, including litigation or actions that may arise from T-Mobile’s consummation of the business combination during the pendency of the California Public Utility Commission’s review of the business combination
T-Mobile is effectively admitting to investors and analysts there is a risk it will be taken to court by the State of California and its regulatory authorities.
Ultimately, this is another version of the State versus Central Government saga which has plagued US bureaucracy for centuries. The State Governments retain the right to create localised legislation and regulation, though how this position overlaps with Federal Government rules has always been a point of contention.
In a separate filing made by T-Mobile, its lawyers believe the CPUC is overstepping its jurisdiction.
…The PD [proposed deal] erroneously asserts that the Commission has the authority to “approve the Merger” and impose conditions as a prerequisite to granting such approval. Both assertions conflict with federal law and the Commission’s own precedent.
In other words, the regulator does not have the power to submit additional requirements on T-Mobile in order to gain approval. This could have a significant impact on the way T-Mobile operates over the coming years.
One of the reasons the merger took so long to be greenlit was opposition from State Attorney Generals. Led by New York Attorney General Letitia James, a joint lawsuit was filed opposing the deal. To appease these objections, T-Mobile and Sprint made numerous commitments to the States, though this latest filing might be considered a way for T-Mobile to back out of these promises.
The ‘Proposed Deal’, as it is referred to in the legal document, includes almost 50 commitments which T-Mobile has made to the State of California ranging from data tariffs, 5G deployments and broadband. However, the lawyers are requesting the courts offer them grounds to change the ‘Proposed Deal’ which could have an impact on the commitments made to the court.
If it is accepted that the CPUC does not have the jurisdiction to make demands in exchange for the deal being approved, considering Federal approval has already been granted, it could offer an opportunity for T-Mobile to reshape the commitments it has made across the country. In the legal world, precedent is everything.
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