T-Mobile Will Pay $200M Penalty In Sprint Lifeline Settlement

The Federal Communications Commission’s Enforcement Bureau has announced that T-Mobile (TMUS) will pay a $200 million penalty to the U.S. Treasury to resolve an investigation of its subsidiary Sprint’s compliance with the Commission’s rules regarding waste, fraud, and abuse in the Lifeline program for low-income consumers.

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According to the FCC, the payment is the largest fixed-amount settlement the Commission has ever secured to resolve an investigation.

The settlement comes after an Enforcement Bureau investigation into reports that Sprint, prior to its merger with T-Mobile, was claiming monthly subsidies for serving 885,000 Lifeline subscribers even though those subscribers were not using the service, in potential violation of the Commission’s “non-usage” rule.

The FCC investigations showed that companies were aggressively selling free Lifeline service, knowing that they would get paid each month even if consumers didn’t use their phones. Since there was no bill, consumers had no incentive to relinquish the subscription.

The matter initially came to light as a result of an investigation by the Oregon Public Utility Commission.

In addition to paying a $200 million civil penalty, Sprint agreed to enter into a compliance plan to help ensure future adherence to the Commission’s rules for the Lifeline program.

“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,” said FCC Chairman Ajit Pai.

Earlier this year, Sprint and T-Mobile merged, with Sprint continuing as a wholly-owned subsidiary of T-Mobile.

Shares in TMUS are up 4.5% in Wednesday’s trading, with shares having gained over 48% year-to-date. Analysts have a bullish outlook on the stock with a Strong Buy Street consensus and $136 average analyst price target (17% upside potential).

Credit Suisse analyst Douglas Mitchelson has just kicked off coverage on T-Mobile with a buy rating and $140 price target, indicating 21% upside potential lies ahead.

The analyst explained: “We believe T-Mobile is poised to take advantage of sector shifts and its newfound spectrum leadership; while already a consensus long and we acknowledge 3Q/4Q competition concerns, Sprint churn, and Biden tax plan concerns, the recent pull-back presents an attractive entry point for mid- to long-term investors.” (See TMUS stock analysis on TipRanks)