U.S. Skeptical on Sprint's Possible T-Mobile Deal

Sprint Corp. board members Masayoshi Son and Dan Hesse met recently with Justice Department officials who said they would view a Sprint acquisition of wireless rival T-Mobile US Inc. with skepticism, people briefed on the conversation said.

The conversation, which occurred in January, shows the seriousness of Mr. Son's interest in a deal, and his highest hurdle. U.S. antitrust authorities regard the current lineup of four national mobile-phone carriers as important to maintaining a competitive market, and department officials indicated at the meeting that a deal combining Sprint and T-Mobile could face regulatory difficulties, the people said.

It doesn't appear the meeting has deterred Mr. Son, who has been the driving force behind the effort to merge Sprint, the third-largest U.S. carrier by subscribers, with No. 4 T-Mobile.

Some of the people briefed on the meeting came away with differing impressions of the level of the Justice Department's concern about such a deal.

Mr. Son's SoftBank Corp., the Japanese technology company that bought a majority stake in Sprint last summer, and Deutsche Telekom AG, the German company that owns about 67% of T-Mobile, have been in talks about merging the two U.S. carriers, people familiar with the matter said.

Sprint got assurances from banks earlier this month that a deal to buy T-Mobile for around $31 billion could win financing, people familiar with the matter said. Junk bonds like those that would be sold to finance such a deal have been hit by recent market turmoil, but conditions remain relatively favorable.

The parties are working through remaining issues including the size of any breakup fee that would be paid if the deal fell apart, who would lead the combined company and whether it should be called T-Mobile or Sprint, the people said. Those issues could take time to resolve, they said.

Justice Department antitrust officials, who review deals for possible harm to competition, are known to welcome meetings with executives ahead of mergers and acquisitions, but they usually are careful not to signal their views on a deal too strongly before giving it a full review.

Representatives of US Airways Group and AMR Corp. sounded out Justice Department officials before announcing their merger as well, but later ran into trouble when the department sued to block the merger. Ultimately, the airlines worked out a settlement that involved giving up some takeoff and landing slots, among other concessions.

The Federal Communications Commission, the nation's top telecommunications regulator, also reviews telecom transactions to determine if they are in the public interest.

The Justice Department meeting was one of a series of discussions Messrs. Son and Hesse plan to hold with regulators and lawmakers.

The discussions involve more issues than just the possible T-Mobile deal, including the introduction of new technologies and wireless competition in an industry considered heavily regulated, said a person familiar with the talks.

The message from regulators shouldn't have come as a surprise. In April, the Justice Department wrote in a comment letter to the FCC that the four wireless carriers competed in ways that are important to consumers. The FCC has sent similar signals.

Sprint, SoftBank, T-Mobile and Deutsche Telekom are all involved in the takeover talks and are debating how best to structure a deal, the people said. They are also contemplating approaches to get a deal past the Justice Department.

A key argument for Sprint and T-Mobile is likely to be that market leaders Verizon Wireless and AT&T Inc., which account for more than two-thirds of the U.S. industry's subscribers and nearly all its profits, won't face any significant competition absent a merger, and that their advantage over smaller carriers will only grow larger over time, people familiar with the matter said. The industry may be going through a competitive spurt now, but it isn't likely to last, they said.

Three years ago the Justice Department shot down a $39 billion deal for AT&T to buy T-Mobile, lauding the smaller company's role as a price-cutting maverick. T-Mobile has stepped up its aggressive tactics in the past year, getting rid of industry standbys like service contracts and international data roaming fees,and has started reversing a long slide in its customer base.

T-Mobile's resurgence might leave regulators less inclined to approve a deal. Justice Department officials regard T-Mobile's strides since the demise of the AT&T deal as good for consumers and competition, said people familiar with the matter.

The turnaround has been led by T-Mobile Chief Executive John Legere, who nevertheless has said consolidation is needed, and has argued that T-Mobile would impart its competitive drive to a combined company. "I think what we're doing in any scenario we will prevail," he said at a press event this month in Las Vegas.

Gautham Nagesh contributed to this article.

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