Sprint and T-Mobile merger faces new lawsuit hurdle

Stock prices for T-Mobile and Sprint slumped on Tuesday, as a group of US state attorneys general sued to block it, saying consumers will pay an unfair price if the deal goes through

By Tiffany Hsu and Matthew Goldstein

Published: Jun 13, 2019

Sprint and T-Mobile merger faces new lawsuit hurdle

A T-Mobile store in New York, June 11, 2019. A group of attorneys general from nine states and the District of Columbia filed a federal lawsuit on Tuesday in a bid to block a proposed merger between the wireless carriers T-Mobile and Sprint, a $26 billion deal that has yet to receive the Justice Department’s approval.
Image: Brittainy Newman/The New York Times

Executives at T-Mobile and Sprint have pitched the merger of their companies as a way for the country to greatly expand its 5G network, a priority for President Donald Trump, who has argued that the widespread adoption of the technology is crucial to national security.

The $26 billion deal seemed to be moving forward in recent weeks, when the head of the Federal Communications Commission gave it his blessing. But on Tuesday, the plan hit a roadblock when a group of state attorneys general sued to block it.

The 10 officials who filed suit, all of them Democrats, said Tuesday that if the merger went through, the prices consumers paid for phone plans would rise as the number of major wireless carriers dropped to three from four.

T-Mobile, the nation’s third-largest wireless company, and Sprint, the No. 4 carrier, have insisted they must get bigger to better serve their customers. A merger would reshape the telecommunications industry in the United States and create a formidable rival to the industry leaders, AT&T and Verizon, with each of the three serving roughly a third of the market.

The lawsuit, led by Letitia James of New York and Xavier Becerra of California and joined by eight other attorneys general, was filed in federal court in Manhattan. James said its aim was “to stop the merger in its tracks.”

Even if it does not foil the merger, the lawsuit could delay the deal significantly. When T-Mobile and Sprint announced in April last year that they had agreed to terms, they expressed the hope that they would be able to close the deal by July 2019. Now the courts, rather than federal regulators, are in charge of the timetable.

T-Mobile and Sprint have said that, together, they would be able to invest more deeply and quickly in fifth-generation cellular networks, or 5G, bringing high-speed internet access to rural areas neglected by cable services.

The attorneys general argued in their complaint that the merger would cost Sprint and T-Mobile subscribers at least $4.5 billion annually. Lower-income and minority communities would be hit especially hard, James said in a statement, calling the deal “exactly the sort of consumer-harming, job-killing megamerger our antitrust laws were designed to prevent.”

The companies have powerful allies in the Trump administration. In signaling his approval of the deal last month, Ajit Pai, the chairman of the Federal Communications Commission, said it would advance “critical objectives” such as “closing the digital divide in rural America and advancing United States leadership in 5G.”

The agency’s five commissioners, three of them Republican, are expected to vote on the proposed merger soon.

The Justice Department is expected to issue a decision in the coming weeks, but its approval of the deal is not a sure thing. Makan Delrahim, the head of the agency’s antitrust division, has pushed the companies to sell parts of their businesses to maintain competition in the industry, according to two people familiar with his thinking.

At a conference in Israel on Tuesday, Delrahim did not directly address T-Mobile and Sprint, but said that “where there are credible concerns that a transaction or business practice is anticompetitive, timely and effective antitrust enforcement is imperative.”

Becerra, of California, said that he and his fellow attorneys general intended to seek a preliminary injunction, so that even if the Justice Department gave Sprint and T-Mobile the go-ahead to operate as a single entity, the companies would first have to resolve the lawsuit.

Scott Hemphill, a professor who teaches antitrust law at New York University, described the lawsuit as a potentially significant impediment to the deal. “If the judge decides to grant an injunction before the transaction is consummated, that would bring things to a halt,” he said.

That view was shared by Blair Levin, a policy adviser at New Street Research, a research firm focused on the telecommunications and technology industries. “At this moment,” Levin said, “no one should have a high level of confidence in the deal moving forward.”

Stock prices for T-Mobile and Sprint slumped Tuesday. Neither company responded to a request for comment. The FCC and the Justice Department declined to comment on the lawsuit.

Trump regards 5G advancement as a key political prize, arguing that China’s lead in establishing the high-speed mobile networks poses a threat to national security. The technology will be a crucial component in the development of robotics, driverless vehicles and other emerging industries. “American companies must step up their efforts, or get left behind,” Trump said on Twitter this year.

T-Mobile, led by John Legere, an executive with roughly 6.3 million Twitter followers who favors a wardrobe heavy on the bright magenta color the company uses in its advertisements, has been a top player in an aggressive lobbying effort in Washington.

In an effort to appease concerns over competition, Legere and his Sprint counterpart, the company’s executive chairman, Marcelo Claure, have offered to scale back their market share by selling Boost Mobile, a Sprint-owned prepaid wireless brand popular with lower-income customers.

Democratic lawmakers have noted that executives pushing for the deal have stayed at Trump hotels repeatedly since the proposed merger was announced. In January, Legere stayed two nights at a $2,246 suite at the Trump International Hotel in the capital.

At a news conference on Tuesday, James, the New York attorney general, said her office had been conducting an investigation into the proposed merger for roughly a year. She and the other attorneys general “have a renewed focus on mergers and competitiveness not only in the tech industry, but in other industries as well,” she said.

A combined T-Mobile and Sprint would put 30,000 jobs at risk, said Dennis Trainor, the vice president of the local chapter of the Communications Workers of America union.

Colorado, Connecticut, the District of Columbia, Maryland, Michigan, Mississippi, Virginia and Wisconsin joined California and New York in filing the lawsuit.