NEW YORK/TOKYO -- The merger plans for American wireless carriers T-Mobile U.S. and SoftBank Group-owned Sprint took a major step forward with the head of the U.S. regulator expressing support for the tie-up.
The proposed $26 billion merger between the nation's third- and fourth-biggest carriers was widely seen to be in trouble as recently as last month when the U.S. Department of Justice reportedly told the two companies that the megadeal was unlikely to win approval as is.
But on Monday, Federal Communications Commission Chairman Ajit Pai cited the benefits the merger would bring in spreading fifth-generation wireless technology to rural areas of the U.S.
"I believe that this transaction is in the public interest and intend to recommend to my colleagues that the FCC approve it," he said in a statement.
"This is a unique opportunity to speed up the deployment of 5G" throughout the U.S., Pai said, "and bring much faster mobile broadband to rural Americans. We should seize this opportunity."
For SoftBank, the deal is key to easing concerns over its massive 15.6 trillion yen ($141.5 billion) debt load.
Under the proposed merger, SoftBank's 84.7% ownership of Sprint will become a 27% stake in the combined company. That will let SoftBank break off Sprint's 4.4 trillion yen debt from its own balance sheet.
SoftBank has pitched to investors that its net debt is only 4.4 trillion yen -- a fraction of the value of its investments -- because it is not responsible for the debt of independently run subsidiaries like Sprint. But some investors are still skeptical of the company's ability to service its debt.
"A lot of investors still think of SoftBank as a telecommunications company, and look at the relatively high level of debt at the consolidated level compared to earnings," said David Gibson, analyst at Astris Advisory Japan. "Deconsolidating Sprint will make the comparison much more simple."
The FCC has been reviewing the merger plan since June last year. Pai's endorsement comes as U.S. President Donald Trump's administration looks increasingly worried about losing technological superiority in next-generation communications.
An FCC approval of the merger would solve a major concern for SoftBank CEO Masayoshi Son, who has sought ways to mitigate the risks of the $21 billion-plus purchase of the carrier completed in 2013.
Sprint shares shot up over 20% during Monday's trading on the New York Stock Exchange, while T-Mobile shares rose 7% at one point on the Nasdaq.
A smaller slice of a stronger company that can better compete with U.S. market leaders AT&T and Verizon may prove more valuable for SoftBank. But Sprint and T-Mobile made concessions to win the FCC chief's endorsement, which may hamper their growth strategy moving forward.
Sprint promised to sell off its prepaid-phone unit Boost Mobile, responding to FCC concerns that putting prepaid subsidiaries of both Sprint and T-Mobile under one roof may stifle competition. Prepaid phones are popular among low-income users, prompting worries that a merger could lead to higher prices.
The two carriers submitted commitments Monday that pledged to close the digital divide in the U.S. and advance American leadership in 5G, the FCC said in the statement.
"The companies have committed to deploying a 5G network that would cover 97% of our nation's population within three years of the closing of the merger and 99% of Americans within six years," the FCC said.
"Additionally, T-Mobile and Sprint have guaranteed that 90% of Americans would have access to mobile broadband service at speeds of at least 100 [megabits per second] and 99% would have access to speeds of at least 50 Mbps," the statement added.
Introducing 5G services requires a major investment, and the two carriers had sought a merger to save costs through eliminating overlap.
The FCC said that the companies would "suffer serious consequences" if they failed to follow through on their commitments.
"These consequences, which could include total payments to the U.S. Treasury of billions of dollars, create a powerful incentive for the companies to meet their commitments on time," it said.
Securing approval from the FCC, the key regulator on telecommunications, would be a major step toward the merger. But the deal also requires the consent of the Department of Justice, which is reviewing the proposal from an antitrust standpoint.