T-Mobile’s acquisition of Sprint just cost an additional $ 200 million
Editor’s note: T-Mobile clarified that Softbank previously agreed to cover all penalties related to the allegations as part of a compensation agreement, so T-Mobile will not ultimately pay the settlement .
It took T Mobile (NASDAQ: TMUS) nearly two years to land its successful $ 26 billion acquisition of Sprint, which closed earlier this year after the Un-carrier has successfully passed numerous regulatory and legal hurdles. Compared to the total value of the all-equity deal, $ 200 million may not seem like a lot, but the merger has gotten a little more expensive.
Here’s why.
Mike Sievert, CEO of T-Mobile. Image source: T-Mobile.
Resolving a “legacy” survey
T-Mobile has settled with the Federal Communications Commission (FCC), which alleged last year (while the merger was still in progress) that Sprint had poorly received subsidies the federal government’s Lifeline program.
Lifeline offers subsidies to low-income consumers to help pay for wireless service, and the agency had accused Sprint of raising tens of millions of dollars for inactive lines in violation of the “no-use” rule. FCC. The subsidy is $ 9.25 per month and is paid directly to participating carriers, who are responsible for unsubscribing inactive subscribers when they identify these lines as unused. There were roughly 885,000 unused lines that Sprint would have collected for.
The FCC says the $ 200 million penalty is the biggest settlement the agency has ever received to resolve an investigation. Sprint has also agreed to implement a new compliance program to ensure it adheres to Lifeline’s rules going forward. Sprint initially attributed the problem to a software glitch.
“Lifeline is key to our commitment to bringing digital opportunities to low-income Americans, and it’s especially critical that we make the most of taxpayer dollars for this vital program,” said the FCC Chairman, Ajit Pai, in a statement. “I am pleased that we were able to resolve this investigation in a way that sends a strong message about the importance of complying with rules designed to prevent waste, fraud and abuse in the Lifeline program.”
“Although we inherited this issue with our merger, we are pleased that it is now resolved,” T-Mobile said in a statement provided to various media. “We look forward to continuing to provide reliable and affordable network connectivity to consumers across the country who depend on it.”
Shortly after the initial investigation was announced, analysts asked T-Mobile management on an earnings conference call whether the allegations could impact the merger. MoffettNathanson analyst Craig Moffett estimated that the maximum penalty could reach $ 5,000 per line, which could have resulted in a notional fine of up to $ 4.5 billion. Then-CEO John Legere declined to comment. Legere resigned as CEO immediately following the completion of the Sprint deal, handing over the reins to then COO Mike Sievert.
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