T-Mobile, Sprint Hope That Shunning Huawei Will Help Clinch US Merger Deal

December 15, 2018 Updated: December 16, 2018

WASHINGTON/NEW YORK—T-Mobile and Sprint hope their parent companies’ offers to stop using equipment from Chinese telecom giant Huawei will help secure U.S. approval for their $26 billion merger deal, sources said, underscoring the lengths to which Washington has gone to shut out the Chinese company.

As with all major U.S. wireless carriers, T-Mobile and Sprint don’t use Huawei equipment, but their majority owners, Germany’s Deutsche Telekom AG and Japan’s SoftBank Group Ltd, respectively, use some Huawei gear in overseas markets.

People familiar with the deal between T-Mobile and Sprint, the third- and fourth-largest U.S. wireless carriers, said U.S. government officials had been pressuring Deutsche Telekom to stop using Huawei equipment, and the companies believed they had to comply before a U.S. national security panel would let them move forward on their deal.

Both Deutsche Telekom and Softbank were reported this week to be seeking to replace the world’s biggest network-equipment maker as their vendor. Now, T-Mobile and Sprint expect the U.S. panel, called the Committee on Foreign Investment in the United States (CFIUS), to approve their deal as early as next week, the sources said.

The sources, however, cautioned that negotiations between the two companies and the U.S. government haven’t been finalized yet, and any deal could still fall through; they asked not to be identified because the matter is confidential.

Sprint, T-Mobile, Deutsche Telekom, SoftBank, and CFIUS declined to comment, while Huawei didn’t respond to a request for comment.

The U.S. government and its allies have stepped up pressure on Huawei over concerns that the company is effectively controlled by the Chinese state and its network equipment may contain “back doors” that could enable cyber espionage, something that Huawei has continually denied. Several telecom operators in Europe and Australia have said they will exclude the Chinese firm from their fifth-generation (5G) mobile networks.

The pressure on Huawei has ratcheted up already heightened tensions between the United States and China over trade. Earlier this month, Meng Wanzhou, Huawei’s chief financial officer and daughter of its billionaire founder, was arrested in Canada for possible extradition to the United States. U.S. prosecutors have accused her of misleading multinational banks about Huawei’s control of a company operating in Iran. 

The United States has been stepping up its targeting this year of both Huawei and ZTE, China‘s second-largest maker of telecommunications equipment. Last March, Trump blocked chipmaker Broadcom’s attempted $120 billion takeover of U.S. peer Qualcomm over concerns the deal could boost Huawei’s competitive position.

ZTE was crippled in April when the United States banned U.S. firms from selling it parts, saying the company broke an agreement to discipline executives who had conspired to evade U.S. sanctions on Iran and North Korea. The ban, which became a source of friction in Sino-U.S. trade talks, was lifted in July after ZTE paid $1.4 billion in penalties, allowing the firm to resume business.

SoftBank plans to replace 4G network equipment from Huawei with hardware from Nokia and Ericsson, Nikkei reported Dec. 13, without citing sources.

Deutsche Telekom, Europe’s largest telecoms company, on Dec. 14 said it was reviewing its vendor plans in Germany and other European markets where it operates, given the debate on the security of Chinese network gear.

The Justice Department and Federal Communications Commission must also approve T-Mobile’s and Sprint’s merger. T-Mobile previously said it expected the deal to close in the first half of next year.

By Diane Bartz in Washington, and Liana B. Baker and Greg Roumeliotis in New York.