TMUS T Mobile US Inc

By Sarah Krouse 

T-Mobile US Inc. and Sprint Corp. are waiting for a federal judge to rule on whether they can merge, but the companies face another hurdle even if they overcome that legal challenge: the California Public Utilities Commission.

The state utilities overseer is the only such body that hasn't yet blessed the $26 billion deal, and its continuing review threatens to further delay -- or even derail -- a merger that has dragged on for nearly two years. The state body has until July to vote but might extend that timeline further.

Just how much power the California Public Utilities Commission and other state bodies like it wield is unclear. Neither company is based in California but, as nationwide wireless providers, they have millions of customers in the state, and Sprint has a small wireline business there. Most other state utility commissions have approved the deal.

A spokesman for the commission said the review was continuing. Representatives for Sprint and T-Mobile declined to comment.

Disapproval by a state public-utility commission could be enough to stop a communications merger, consultants at NERA Economic Consulting wrote in a 2017 paper that analyzed state reviews of 40 such transactions. The paper found that California, New York and West Virginia historically have the most active utilities commissions when it comes to reviewing communications mergers.

Other legal experts said that while the California commission could demand further concessions from the carriers and delay the deal's close, it was unlikely to scuttle the transaction. It was more common for utilities commissions to block energy deals involving local businesses than to block telecommunications transactions, they said, because the latter involve wireless service sold nationally.

"It has some leverage, but it's not endless," Samuel Weinstein, an assistant law professor at the Cardozo School of Law at Yeshiva University, said of the utilities commission. "What tends to come out of these proceedings is some concessions by the merging parties."

States typically seek remedies such as pricing guarantees or infrastructure investments, the NERA authors found. When Frontier Communications Corp. bought some Verizon Communications Inc. wireline assets in 2015, for example, the California commission's demands included requiring the company to make some price-control commitments, invest in bringing broadband to rural areas and fund the purchase of Wi-Fi-capable tablets.

State utilities commissions generally review communications mergers to see if they are in the public interest and consider factors such as what impact the deal will have on competition, service quality and company employees.

California's public-utilities code states that no companies can merge or acquire any public utility doing business in the state without the commission's approval, whether or not that firm is organized there. "Any merger, acquisition, or control without that prior authorization shall be void and of no effect," it says.

State reviews often "impose significant and unnecessary costs in the form of procedural burdens and delays," the NERA authors said. One of the authors submitted an expert opinion on behalf of T-Mobile when it sought Federal Communications Commission approval.

The California commission, whose members are appointed by the governor and approved by the state senate, has come under pressure for its oversight of utility PG&E Corp., whose equipment sparked several deadly wildfires.

The commissioner overseeing the review of the T-Mobile-Sprint merger, Clifford Rechtschaffen, worked previously as a senior adviser to former Gov. Jerry Brown and as special assistant attorney general.

The public advocate's office within the Public Utilities Commission said in a December brief that the deal in its current form wasn't in the public interest. An administrative-law judge or Mr. Rechtschaffen will now propose a decision that parties will have 30 days to comment on before the commission votes on the matter.

No date has been set for the vote, a commission spokesman said.

State challenges have proved time-consuming for Sprint and T-Mobile since the merger was announced in April 2018. A coalition of state attorneys general sued to block the deal after FCC Chairman Ajit Pai said he would support the transaction. The FCC and the Justice Department later approved the merger after the companies agreed to certain concessions, but most of the states went ahead with their legal challenge.

If the companies prevail in the antitrust lawsuit and the deal isn't approved in California, Sprint and T-Mobile could challenge California's decision in court, which could test the power of public-utilities commissions, legal experts said.

Write to Sarah Krouse at sarah.krouse@wsj.com

(END) Dow Jones Newswires

January 26, 2020 13:54 ET (18:54 GMT)

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