Democratic State AGs Seek to Block T-Mobile/Sprint

T-Mobile's buy of Sprint faces an antitrust lawsuit from New York, eight other states and the District of Columbia. Democratic attorneys general sued Tuesday in U.S. District Court for the Southern District of New York, ahead of decisions by the FCC, DOJ and California Public Utilities Commission. Because "the effect of T- Mobile’s merger with Sprint 'may be substantially to lessen competition,' the Court should permanently enjoin the merger," the lawsuit said. States contacted DOJ and carriers, and “negotiations are ongoing,” said New York AG Letitia James (D) at a livestreamed news conference.

New Street’s Blair Levin told investors the legal challenge is bad news for the companies and effectively shifts the action from DOJ to the courts. The upcoming decision of antitrust chief Makan Delrahim on “whether to agree with the FCC or to join the states is important for understanding the odds as the parties head to court, but the DOJ is no longer the final word, as it would have been if the DOJ decided to let the deal move ahead and the states had decided not to sue,” Levin said.

Sprint closed down 5.9 percent to $6.58. That's a little more than a dollar below the per-share takeover price.

Challenger AGs are from New York, California, Colorado, Connecticut, Maryland, Michigan, Mississippi, Virginia, Wisconsin and D.C. The AGs’ investigation couldn’t verify many of the carriers’ claimed benefits but found it would hurt competition, raise prices and reduce service quality, the New York AG office said. It would also hurt independent mobile sellers, kill retail jobs and reduce workers’ pay, the office said. T-Mobile provided no plans to convince the states that rural coverage would increase, it said.

FCC Chairman Ajit Pai supports the deal and a commission vote could come at the July meeting (see 1906070058). Most state public utility commissions greenlit the deal; California’s is the last left to decide (see 1905230032). The FCC and DOJ didn't comment. Nor did the companies.

Nothing required state AGs to wait for DOJ, and they had no obligation to give the department advance notice about its suit, James said. The deal would end “fierce competition” among carriers, meaning likely higher prices that especially hurt low-income people, James said. T-Mobile is unlikely to improve rural coverage, she said. “Looking at their track record, it's hard to believe that a merger would increase coverage by any measure.”

“The merger would deprive customers of the benefits of competition & drive up prices for cellphone services,” James tweeted. “When it comes to corporate power, bigger isn’t always better.”

“The evidence weighs against” faster, cheaper service as a result of the combination, said California AG Xavier Becerra (D) in New York’s release. “This merger would hurt the most vulnerable Californians and result in a compressed market with fewer choices and higher prices.” D.C. AG Karl Racine (D) said the “anticompetitive merger will harm every District resident with a cell phone plan, especially our lower-income consumers, for whom even a small price increase can mean not having cell service at all.”

“Direct competition between Sprint and T-Mobile has led to lower prices, higher quality service, and more features for consumers,” the suit said. “The merger will eliminate the competition between Sprint and T-Mobile and will increase the ability of the three remaining [carriers] to coordinate on pricing.”

The deal doesn't require state AG signoff, but they have the same Clayton Act right as any private party to challenge a transaction in court. Historically, state AGs partner with DOJ or the FTC in a challenge, or -- if state AGs disagree with the federal bodies -- they can sue on their own. About 18 state AGs told the FCC they were reviewing the wireless deal and sought access to confidential numbering resource utilization and forecast reports (see 1906060018).

In DOJ's Hands

“We continue believe the fate of this deal lies in the hands of the DOJ,” BTIG’s Walter Piecyk told us: “It’s possible but not probable that the AGs can stop T-Mobile from closing if they can agree to terms with the DOJ. It’s also interesting that both the FCC and the AGs felt the need to pre-empt the DOJ’s decision.”

The lawsuit puts Delrahim “in a very tough spot,” said MoffettNathanson’s Craig Moffett. “It would be very challenging to approve the deal now, after the states have already filed and requested an injunction.”

Former FCC Commissioner Mignon Clyburn, who's working for T-Mobile, defended the deal in a statement: "A strong third nationwide wireless competitor would be in the public interest. Particularly for those on the wrong side of the digital divide, this lawsuit by a small number of state attorneys general would reinforce an unacceptable status quo, further entrench two telecom behemoths, and ensure those without next generation telecommunications opportunities today remain so."

State AGs suing without DOJ might hint they disagree on the deal, said State and Local Legal Center Executive Director Lisa Soronen. Separate state and federal lawsuits with different causes of action can happen, former CPUC and FCC Commissioner Rachelle Chong told us.

The Communications Workers of America and the Rural Wireless Association joined James at the news conference. The state action is “a reminder that regulators must take labor market concerns seriously when evaluating mergers,” said CWA President Chris Shelton in the New York AGs' release. RWA is glad because FCC process "has not been transparent and the FCC appears to be blindly accepting New T-Mobile’s words as truth,” wrote General Counsel Carri Bennet.

Stakeholders React

Groups opposed to the deal quickly applauded the lawsuit. Consumer Reports and others urged DOJ to join the suit.

“Ten state attorneys general have recognized that the consolidation of the wireless market that would result from this proposed merger is bad for American wireless users, workers, and competition,” emailed a 4Competition Coalition spokesperson. “This deal would reduce choice, limit competitive pressures, and stifle innovation.” The group represents CWA, Dish Network and other leading opponents of the deal.

“Despite the companies’ speculative and unenforceable promises, changing our country’s competitive landscape from four nationwide wireless providers to three will result in higher prices for consumers and poorer availability of services, particularly in rural areas,” said NTCA CEO Shirley Bloomfield. “Blocking this transaction is the right move for American consumers,” said Avery Gardiner, senior fellow-competition, data and power at the Center for Democracy & Technology. “There is a ton of innovation in the mobile space that can only continue if we have vibrantly competitive wireless networks.”

“After more than a year of review, the unsupported claims T-Mobile and Sprint have made regarding the benefits of their merger have collapsed under close scrutiny from antitrust enforcement officials and the public,” said Phillip Berenbroick, Public Knowledge senior policy counsel. “The wireless market is already highly concentrated.”