Editor’s note: T-Mobile has clarified that Softbank had previously agreed to cover any penalties related to the allegations as part of an indemnification agreement, so T-Mobile will not ultimately pay the settlement.
It took T-Mobile (NASDAQ:TMUS) nearly two years to clinch its $26 billion blockbuster acquisition of Sprint, which closed earlier this year after the Un-carrier successfully cleared numerous regulatory and legal hurdles. Compared to the total value of the all-stock deal, $200 million might not seem like much, but the merger just effectively got a little bit more expensive.
Resolving an "inherited" investigation
T-Mobile has settled with the Federal Communications Commission (FCC), which had alleged last year (while the merger was still pending) that Sprint had improperly collected subsidies from 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 reaping tens of millions of dollars for inactive lines in violation of the FCC's "non-usage" rule. The subsidy is $9.25 per month and is paid directly to participating carriers, which are responsible for unenrolling inactive subscribers when they identify those lines as being unused. There were an estimated 885,000 unused lines that Sprint was allegedly collecting for.
The FCC says that the $200 million penalty is the largest settlement that the agency has ever received in order to resolve an investigation. Sprint has also agreed to implement a new compliance program in order to make sure that it adheres to Lifeline rules going forward. Sprint had initially blamed the issue on a software glitch.
"Lifeline is key to our commitment to bringing digital opportunity to low-income Americans, and it is especially critical that we make the best use of taxpayer dollars for this vital program," FCC Chairman Ajit Pai said in a statement. "I'm pleased that we were able to resolve this investigation in a manner that sends a strong message about the importance of complying with rules designed to prevent waste, fraud, and abuse in the Lifeline program."
"While we inherited this issue with our merger, we are glad that it is now resolved," T-Mobile said in a statement provided to various media outlets. "We look forward to continuing to deliver 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 leadership on an earnings conference call if the allegations might impact the merger. MoffettNathanson analyst Craig Moffett estimated that the maximum penalty could be as high as $5,000 per line, which could have resulted in a theoretical fine of as much as $4.5 billion. Then-CEO John Legere declined to comment. Legere stepped down as CEO immediately after the Sprint deal closed, handing the reins over to then-COO Mike Sievert.