More State AGs Could Challenge T-Mobile/Sprint

States are still deciding if they should join New York and nine other AGs suing to stop T-Mobile from buying Sprint, AG offices told us this week. Completing the deal could depend on the state case, unless a global settlement satisfies everyone involved, said Pennsylvania State University law professor Susan Beth Farmer. A pre-trial status conference scheduled Friday in New York is expected to be for scheduling purposes, and the court probably won't decide then on a preliminary injunction, said a spokesperson for New York AG Letitia James (D). The lawsuit was filed at U.S. District Court for the Southern District (see 1906140041).

Expect the suit “to generate a searching look by the CPUC on the deal proposal's effects on competition and the public interest in California,” said former California Public Utility Commissioner Catherine Sandoval. California AG Xavier Becerra (D) is part of the suit. His office and the CPUC are likely to be sharing information about the deal, said Sandoval, a Santa Clara University law professor. The carriers didn't comment Thursday.

About 23 state AGs asked the FCC for information about the deal, with requests after the suit. The commission said Thursday it recently got letters from Arizona, Delaware, Michigan, Minnesota, Nebraska, North Carolina and Pennsylvania AGs, seeking access to numbering resource utilization and forecast reports and disaggregated, carrier-specific local number portability data.

Things moved quickly when it became clear New York was going to file, and several states that were watching the deal weren't ready to commit without knowing more about specific claims and doing more due diligence, said a spokesperson for Arizona's Mark Brnovich (R), one of the undecided AGs. It’s possible some states will instead join a potential DOJ complaint rather than New York case, but they can’t join both, the spokesperson said.

Brnovich raised concerns in a May 24 letter to T-Mobile CEO John Legere. Brnovich is “troubled” about the effects of losing one national competitor on broadband access in rural Arizona, including tribal nation territory, prices and jobs, the AG wrote. “T-Mobile has a history of underserving rural areas. It often has failed to work with rural carriers, failed to provide its subscribers with roaming access to rural networks, and, when required to provide access, charged roaming rates at an exorbitantly higher rate than Sprint.” Brnovich also is concerned about the deal’s “likely negative effect” on mobile virtual network operators since Sprint historically has given the best terms for lower-cost providers.

Washington state's Bob Ferguson (D) “is still evaluating the information we have received from the parties,” he said in a statement. “I have not made a final decision as to whether to join a legal challenge.” North Carolina's Josh Stein (D) is “closely following this matter,” a spokesperson emailed. In Iowa, Tom Miller (D) continues “to study the deal and haven’t made a decision yet on joining,” his spokesperson emailed. Alabama, Hawaii and Nebraska AG offices declined comment and other states didn’t respond.

State Authority

“The Supreme Court has consistently recognized that state attorneys general do have power under the federal antitrust laws,” and case law supports states bring their own case even when federal agencies disagree, said Penn State’s Farmer. States in the T-Mobile/Sprint case make “classic” economic-harm arguments seen in older antitrust cases, she said. They don’t seem political on their face, she said. Even if the carriers get all other approvals, the states have authority to continue the case if they want, she said. “The states could at least delay it while the preliminary injunction hearing goes forward, and then it would be a decision on the merits.” Decision on preliminary injunction could come quickly because “delay in a merger is a very serious problem” and “everybody wants to move forward.”

There were more state antitrust cases than federal in the early days of the Sherman Act, Farmer noted. That changed, though states were “quite active” in the 1980s “when the Justice Department was somewhat less active,” she said. In recent years, it has been more common for states and DOJ to work together challenging deals, said Farmer. Monday’s Supreme Court decision in Gamble v. U.S., a criminal case about double jeopardy, recognized state and federal governments as separate sovereigns, Farmer said.

AGs “make a strong case for further review and analysis on the impact of the merger -- which necessarily requires an injunction,” emailed The Utility Reform Network Managing Director-San Diego Christine Mailloux. TURN opposes the deal in California. It’s unusual for state AGs “to step out in front like this, and emblematic of how strong they believe their case is, how weak (or at least complicated and vague) the FCC and DOJ records are, and how politicized this process has probably become at the DOJ,” she said.

New Street’s Blair Levin said Thursday many questions remain about a deal with Dish Network (see 1906170051), which could win approval for the overall transactions from DOJ. Levin expects a framework announcement “as early as tomorrow but probably next week,” he emailed. “That is far from done, with the big question of the odds on the state litigation remaining.”

CPUC Impact

California law requires the CPUC to seek the AG's opinion once a revenue threshold is passed, Sandoval emailed. “The CPUC can request the CA AG's opinion on the proposed deal's competitive effects and weigh that as part of their analysis of the public interest, convenience, and necessity under the California Public Utilities Code.”

The agency sought the AG's opinion when Sandoval was commissioner and the regulator was reviewing Frontier Communications' buy of Verizon landline assets, she said. The AG said the deal wouldn’t harm competition, but Becerra's joining the T-Mobile lawsuit suggests he would likely tell the CPUC the deal “is presumptively anticompetitive in California as the deal's anticipated pro-competitive effects are weighed against the data indicating anticompetitive harm,” she said.

Impact on California’s timeline “may not be more than a few weeks,” Mailloux said: “The Commission is not prohibited from moving forward separately from the CA AG office,” though it’s “unusual to get out ahead of the CA AG office.” The commission “will often rely, in part, on the AG's opinion to find public interest in these mergers or to impose conditions to address antitrust concerns.” The CPUC didn’t comment.

T-Mobile's Legere blogged Thursday that the deal will be good for innovation. “Just as 4G enabled innovators in the U.S. to create the Ubers, Lyfts, Snaps and Venmos of the world, 5G will usher in a whole new wave of innovation,” he said. One of the company’s major concessions is the launch of 5G in areas that otherwise might be unserved. “This is innovation that can come from anywhere,” he said: “Who’s to say that the next groundbreaking app is going to be created in the middle of a huge city center? America is full of innovative minds. We are much more likely to lead as a country in the next industrial revolution if more people have access to the technology that allows them to innovate” anywhere.

Meanwhile, executives from T-Mobile and Sprint said they met this week with the FCC transaction team. The companies “discussed several issues raised in the Applicants’ previous submissions and relevant to the Commission’s competition analysis, including the network improvements and efficiencies achievable through the merger and projected in the Applicants’ network and economic modeling, the variety of participants in the wireless market, and the limitations of porting data,” said a filing posted Thursday in docket 18-197: “Representatives of Sprint also reviewed the previously documented challenges faced by Sprint.” Company attendees were Kathleen Ham, T-Mobile senior vice president-government affairs, and Vonya McCann, with the same title for Sprint.