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States to File Antitrust Suit to Block T-Mobile-Sprint Deal

David McLaughlin and Erik Larson
States to File Antitrust Suit to Block T-Mobile-Sprint Deal

(Bloomberg) -- A group of states sued to block T-Mobile US Inc.’s proposed takeover of Sprint Corp. on antitrust grounds, putting pressure on the Justice Department as it nears a final decision on the merger of the two wireless carriers.

State attorneys general from nine states and the District of Columbia filed the lawsuit Tuesday in federal court in New York to stop a deal they say will harm competition and raise prices for consumers by at least $4.5 billion a year.

“When it comes to corporate power, bigger isn’t always better,” New York Attorney General Letitia James said in a statement. “This is exactly the sort of consumer-harming, job-killing mega-merger our antitrust laws were designed to prevent.”

The states’ challenge is a major setback to T-Mobile’s and Sprint’s plan to combine and take on industry leaders AT&T Inc. and Verizon Communications Inc. Last month, the carriers cleared a key hurdle when they won support for their deal from the chairman of the Federal Communications Commission.

The all-Democratic attorneys general are taking the rare step of suing to block the $26.5 billion deal while the Justice Department is still reviewing the merger. State enforcers have the authority to go to court to block a merger even if federal officials at the Justice Department and the FCC approve it. Sprint shares dropped 6.4% at 12:15 p.m. in New York trading. T-Mobile fell 1.7%.

The spread between T-Mobile’s offer price and Sprint shares is the widest since May 17. It’s a sign that investors are more doubtful that a deal will get done.

Sprint and T-Mobile representatives didn’t immediately respond to a request for comment.

The case puts pressure on Makan Delrahim, the head of the Justice Department’s antitrust division. He can either side with the states, which say the merger should be blocked, or negotiate a remedy that would allow the deal to proceed. Delrahim doesn’t think a settlement with the FCC goes far enough to resolve competition problems from the deal and is in talks with the companies about additional concessions.

What Bloomberg Intelligence Says:

T-Mobile getting its proposed $27 billion acquisition of Sprint past regulatory hurdles is no done deal, though the companies have some defenses that stand a chance. The Department of Justice has expressed interest in the competitive potential of 5G technology and a strong competitor to AT&T and Verizon in that area. The outcome depends to a great extent on whether the evidence supports T-Mobile’s assertions about future market dynamics and 5G competition.

--Jennifer Rie, litigation analyst

Click here to view the piece

The state attorneys general say that combining T-Mobile and Sprint would eliminate competition between them and lead to higher prices. And in a more consolidated market, AT&T and Verizon would also be able to charge more.

“Although T-Mobile and Sprint may be promising faster, better, and cheaper service with this merger, the evidence weighs against it,” said California’s Attorney General Xavier Becerra. “This merger would hurt the most vulnerable Californians and result in a compressed market with fewer choices and higher prices.”

In the retail mobile wireless market, not including enterprise accounts, T-Mobile and Sprint would lead AT&T and Verizon in market share, according to the states. In some areas of the country, their market share would be more than 50%, they said. Harm from the tie-up will disproportionately fall on lower-income consumers who are customers of Sprint and T-Mobile’s pre-paid brands, Boost and Metro, they say.

Deal Investigation

According to people familiar with their thinking, state officials don’t know whether the Justice Department will ultimately approve the deal. They are taking action because after investigating the merger for about a year they determined it violated antitrust laws and they don’t see any reason to wait for the Justice Department to make a decision, the people said.

The states’ investigation, led by the chief of New York’s antitrust bureau, Beau Buffier, relied on technical and economic experts, according to one of the people. Their economists are Carl Shapiro of the University of California at Berkeley and Yale University’s Fiona Scott Morton, the person said.

The case comes more than a year after T-Mobile and Sprint announced the deal to combine, claiming together they could better compete with Verizon and AT&T while speeding deployment of the next generation of wireless technology known as 5G. Although a previous attempt to merge was frustrated by the Obama administration, T-Mobile and Sprint were betting on a more receptive audience from the Trump officials.

The tie-up’s fate now rests with a federal judge, who must decide whether it should be blocked on antitrust grounds. The companies could still reach a settlement before the case goes to trial.

If the carriers are stopped from completing the deal, they would be left to their own to compete in a maturing wireless market while financing expensive investments in developing their own 5G networks.

‘Supercharge’ T-Mobile

Sprint’s challenges are bigger. Despite becoming profitable last year after a decade of losses, it warned the FCC that without a deal it sees “no obvious path to solve key business challenges.”

T-Mobile Chief Executive Office John Legere took the lead on Capitol Hill -- and on social media -- advocating for the deal. He said the transaction would “supercharge” his company, which he made a maverick competitor in the market. The centerpiece of his case was that combining with Sprint would help the U.S. lead in 5G technology, a priority for the Trump administration.

That argument was dismissed by opponents of the deal, including consumer groups and the Communications Workers of America, which said the merger would reduce choice, lead to higher wireless bills and cause job losses.

Getting a deal with T-Mobile was a long-held plan of Masayoshi Son, the chairman of SoftBank Group Corp., which owns Sprint. In 2014, he came to Washington vowing a price war if he was able to acquire T-Mobile and personally lobbied U.S. officials about a potential tie-up. If the deal goes through, T-Mobile owner Deutsche Telekom will end up with a 42% ownership stake while SoftBank will own 27%.

(Updates with statement from James in third paragraph.)

--With assistance from Scott Moritz.

To contact the reporters on this story: David McLaughlin in Washington at dmclaughlin9@bloomberg.net;Erik Larson in New York at elarson4@bloomberg.net

To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net, Joe Schneider, David Glovin

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