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Multistate AG Lawsuit Could Thwart Sprint-T-Mobile Megamerger

Lawsuit
Josh Long

Josh Long

By Josh Long

Despite reaching an agreement this summer with the U.S. Department of Justice to salvage their planned merger, Sprint and T-Mobile still face a major regulatory obstacle.

A group of state attorneys general from New York to California claim the deal will harm competition, limiting access to affordable wireless service.

If Sprint and T-Mobile are unable to assuage concerns raised by the state AGs in the coming months, a federal court is likely to decide the fate of a merger combining two of the nation’s largest wireless carriers. A trial is scheduled to begin Dec. 9 in the U.S. District Court for the Southern District of New York, a spokesperson for the New York Attorney General’s Office said.

Illinois on Tuesday became the 17th state to join the multistate suit aiming to block the deal. A  coalition in opposition to the merger is said to represent half of the U.S. population.

“If left unchallenged, the current plan will result in reduced access to affordable wireless service in Oregon (the 16th state to join the suit last month) — and higher prices,” Oregon Attorney General Ellen Rosenblum asserted in a statement. “Neither is acceptable.”

Sprint and T-Mobile are expected to try to find a way to alleviate the states’ concerns before the trial starts. But a resolution to the lawsuit is “anybody’s guess,” said Keith Snyder, an equity analyst with CFRA Research, an investment research provider.

CFRA Research's Keith Snyder

CFRA Research’s Keith Snyder

“At some level, I don’t know if there’s a way that will both appease the AGs but also be financially feasible,” Snyder said in an interview with Channel Partners. “At some point, no deal is better than a really bad one.”

The Justice Department and five states – Kansas, Nebraska, Ohio, Oklahoma and South Dakota – in July brought a civil antitrust suit in Washington, D.C., to block the merger and simultaneously filed a proposed settlement to resolve their concerns.

“By combining two of the only four national mobile facilities-based wireless carriers, without appropriate remedies, the merger of T-Mobile and Sprint would extinguish substantial competition,” the complaint stated.

Key to the proposed settlement: Dish Network, the Colorado-based satellite TV provider. Sprint and T-Mobile have agreed to divest Sprint’s prepaid business and certain spectrum assets while making available to Dish at least 20,000 cell sites and hundreds of retail locations.

Snyder predicts Dish will compete on price if the merger is ultimately approved.

“Dish is going to come out swinging as the smallest competitor with the poorest network standing,” the analyst said. “They are going to drive the price really far down just to attract customers.”

If the nation’s third- and fourth-largest wireless providers merge, Deutsche Telekom would become the largest shareholder of the combined company.

“The New T-Mobile will be a fierce competitor in wireless, broadband and beyond,” John Legere, CEO of T-Mobile US, and Marcelo Claure, executive chairman of Sprint, wrote in an open letter to consumers. “We will fight for consumers and lower prices while delivering more value.”

But New York Attorney General Letitia James and her colleagues in more than a dozen states, including California – home to the nation’s largest population of nearly 40 million people – remain skeptical about the impact of the deal, even with efforts to make Dish a competitor in the wireless industry.

“Dish has never shown any inclination or ability to build a nationwide mobile network on its own and has repeatedly broken assurances to the Federal Communications Commission about deployment of its spectrum,” James’ office proclaimed in a news release after the Justice Department announced the proposed settlement.

The state AGs also are concerned Dish would rely on T-Mobile’s “network for the foreseeable future,” according to the news release, which also expressed skepticism Sprint and T-Mobile “will act directly against its own economic interests by helping transform Dish into …

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