U.S. Justice Department staff recommends blocking T-Mobile-Sprint deal, sources say

WASHINGTON (Reuters) - The U.S. Justice Department’s antitrust division staff has recommended the agency block T-Mobile US Inc’s $26 billion acquisition of smaller rival Sprint Corp, according to two sources familiar with the matter.

While Justice Department staff balked at the merger, the Federal Communications Commission indicated on Monday it had reached an agreement in principle with the companies to allow the deal after the companies agreed to sell Sprint’s prepaid brand Boost Mobile.

The final decision on whether to allow two of the four nationwide wireless carriers to merge now lies with political appointees at the department, headed by antitrust division chief Makan Delrahim.

Sprint shares fell 4.2% at $6.92 while T-Mobile dipped nearly 1% at $76.49.

The Justice Department, which often follows staff recommendations, is expected to make a final decision in about a month, the sources said.

Staff at the antitrust division, who remain in their jobs even when administrations change, have long been skeptical of the proposed merger, sources have told Reuters.

T-Mobile has a reputation for aggressively seeking to cut prices and improve service to woo customers away from market leaders Verizon Communications Inc and AT&T Inc, and staff may want to preserve that dynamic.

A T-Mobile store is pictured in the Manhattan borough of New York, New York, U.S., May 20, 2019. REUTERS/Carlo Allegri

T-Mobile and the Justice Department did not respond to requests for comment.

One critic of the deal, Gene Kimmelman, president of Public Knowledge, the nonprofit public interest group, said top brass in the Justice Department’s antitrust division do not generally overrule the staff but they occasionally do.

“I’d be extremely surprised if the front office overruled this,” added Kimmelman, a veteran of the Obama Justice Department.

A second antitrust expert, who declined to be identified, noted a previous deal during the Trump administration in which staff recommended filing a lawsuit to block the transaction but they were overruled.

AT&T and Verizon each have 34% of the U.S. wireless market, T-Mobile has 18% and Sprint has 12%, analyst Craig Moffett of MoffettNathanson said in a blog post this week. Smaller carrier make up the balance.

In discussions with the FCC, T-Mobile and Sprint also promised not to terminate a deal that would allow cable operator Altice USA Inc to offer mobile phone service later this year using Sprint’s network.

Altice had urged the FCC to reject the deal because it was concerned it would be stopped from offering the phone service.

The companies also pledged that the merged company would build a “world-leading” 5G network, touted as the next generation of wireless service. They promised to give rural Americans robust 5G broadband and enhanced home broadband.

The FCC and Justice Department almost always agree publicly on merger reviews, and experts say they have not had a major review disagreement in four decades.

Now, state attorneys general and public utility commissions will review the deal, potentially pushing a closing to the third quarter of this year, a Citibank note said.

T-Mobile, which is about 63 percent owned by Deutsche Telekom AG, has about 80 million customers. Sprint, about 84 percent owned by SoftBank Corp, has some 55 million customers.

Reporting by Sheila Dang and Diane Bartz; Editing by Chizu Nomiyama and Jeffrey Benkoe