Three months after merger approval, T-Mobile and California continue to feud

Nearly
three months ago, T-Mobile closed its acquisition of Sprint. The California
Public Utility Commission (CPUC) approved the transaction. Now the parties may
be headed to court over whether the merger should happen and on what terms.

A T-Mobile logo on a storefront in New York City – via REUTERS

T-Mobile’s request for modification

As those who have followed the Sprint merger saga know, the road through California has long been a bumpy one. California’s attorney general helped lead the unsuccessful state antitrust suit to block the merger. And the California Public Utilities Commission’s regulatory review involved two years of increasingly passive-aggressive moves. Ultimately, the commission announced that it would not complete its process by the companies’ April 1, 2020 merger deadline. Rather than waiting, the companies merged without commission approval, defying an explicit commission order and arguing that the CPUC lacked jurisdiction to block wireless mergers. (I wrote about this bold move here.) The commission then approved the deal, with conditions, sixteen days later.

That unusual approval process gave rise to the latest controversy. Last week, T-Mobile filed a Petition for Modification with the CPUC. (Hat tip to Ars Technica’s Jon Brodkin, and additional props for linking to the relevant filings.) The petition requests that the commission change three conditions attached to the decision approving the order. The most significant of these is the employee headcount provision. During the review process, T-Mobile voluntarily committed to maintaining the same number of full-time employees in California for three years following the merger. But the commission mandated that the company employ one thousand more employees by 2023. The discrepancy likely stems from a separate T-Mobile commitment to open a new, thousand-employee “customer experience center” in central California. T-Mobile presumably wishes to count these jobs as part of its commitment to maintain headcount, while the CPUC seems to treat them as independent obligations.

T-Mobile argues that the CPUC lacks authority to impose a jobs condition on the company against its will. The request thus squarely presents the nuclear issue at the core of the April dispute: whether the state has authority to regulate wireless mergers. The CPUC claims jurisdiction pursuant to California Public Utilities Code Section 854, which gives it broad authority to assure that a transaction is in the “public interest,” including that it is “fair and reasonable to affected public utility employees.” Presumably, this statute would include the power to adopt employee headcount guarantees — although T-Mobile’s filing notes that the CPUC has eschewed such power in at least some of its past decisions.

Federal preemption of state wireless merger
review

T-Mobile’s
response, which it has argued consistently throughout the proceeding, is that
wireless transactions are exempt from Section 854 review, under both state and
federal law. T-Mobile notes that a 1995 CPUC decision explicitly exempted
wireless mergers from Section 854, and a 2005 decision reiterated that holding.
More significantly, the company argues that Section 332 of the Communications
Act preempts state review of wireless mergers.

Having
consistently rejected this argument throughout the proceeding, it seems
unlikely that the CPUC will now grant T-Mobile’s request. The resulting
showdown raises an important question that courts have not yet definitively answered:
To what extent has Congress preempted state regulation of wireless mergers?
Section 332 of the Communications Act prohibits states from regulating wireless
rates or entry, though it preserves state regulatory authority over “other
terms and conditions.” For over a quarter century, state public utility
regulators and wireless companies have bargained in the shadow of the law,
negotiating merger approvals subject to conditions rather than testing the
limit of state authority.

I analyzed T-Mobile’s federal preemption argument at length in an article written as part of the Free State Foundation’s “Perspectives” series. Although the issue is not free from doubt, and there is some legislative history favoring the CPUC’s interpretation, my sense is that T-Mobile has the stronger argument. Licensing is the Federal Communications Commission’s (FCC) core tool to regulate wireless market entry. Once the FCC approves a license transfer, state attempts to block a decision would thus constitute regulation of “entry.” In this case, the CPUC decision not only sets milestones for the company to provide 5G service and home broadband services, but it also places conditions on the price of that broadband service. It also provides a path by which Dish Network will begin providing wireless service. If pressed, the CPUC would find it difficult to explain how its decision does not regulate wireless rates and entry.

T-Mobile’s filing suggests it is unlikely to comply with a hiring requirement to which it did not agree, particularly in light of the pandemic’s economic fallout. But this is bigger than a labor dispute. Now, the CPUC must decide whether these thousand jobs are worth rolling the dice in court, and potentially limiting all states’ jurisdiction over future wireless mergers. Many both inside and outside California will be interested in the result.

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