A group of states are suing T-Mobile US Inc for antitrust motives, putting pressure on the Justice Department as it approaches the final decision on the merger of the two mobile phone companies. carriers.
State attorneys general led by Letitia James of New York are preparing a lawsuit in a federal court in New York Tuesday to prevent a deal that will hurt competition and raise prices to consumers by at least $ 4.5 billion a year, according to people familiar with the matter. case.
The challenge of 10 states and the District of Columbia is a major setback for T-Mobile and Sprint plan to combine and take on industry leaders AT & T Inc. and Verizon Communications Inc. Last month, carriers canceled a key hurdle when they got support for their business from the chairman of the Federal Communications Commission.
The states, all led by Democrats, are taking the rare step of bringing the $ 26.5 billion settlement, 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 from the Justice Department and the FCC approve it. Shares of Sprint fell 4.8% from 10:18 a.m. on the New York Stock Exchange. T-Mobile fell 1.3%.
Sprint and T-Mobile representatives did not respond immediately to a comment request.
The case pressured Makan Delrahim, head of the Department of Justice's antitrust division. It can stand on the side of states, which say the merger should be blocked or negotiate a remedy that will allow the deal to continue. Delrahim does not think the deal with the FCC goes far enough to solve the competition's problems of the deal and is in talks with the companies about additional concessions.
What Bloomberg Intelligence says:
T-Mobile, upon receiving Sprint's $ 27 billion bid with regulatory bottlenecks, is not complete, though companies have some defenses that stand a chance. The Justice Department has expressed interest in the competitive potential of 5G technology and a strong competitor to AT & T and Verizon in this area. The result depends to a large extent on the evidence supporting T-Mobile's claims about future market dynamics and 5G competition.
– Jennifer Rie, litigation analyst
Click here to see the play
State prosecutors say combining T-Mobile and Sprint would eliminate competition between them and lead to higher prices, costing subscribers of the two companies about $ 4.5 billion a year, according to people familiar with the case . This estimate underestimates the actual loss, they say, because it does not include the higher AT & T prices and Verizon could charge in a more consolidated market.
In the wireless mobile retail market, excluding corporate 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. Losses from membership will fall disproportionately on low-income consumers who are Sprint customers and prepaid T-Mobile, Boost and Metro brands, they say.
According to people familiar with his thinking, state officials do not know whether the Justice Department will approve the agreement. They are acting because after investigating the merger for about a year, they determined that it violated antitrust laws and saw no reason to wait for the Justice Department to make a decision, the people said.
The state investigation, led by the head of the antitrust department in New York, Beau Buffier, had technical and economic experts, according to one person. His economists are Carl Shapiro, of the University of California at Berkeley, and Fiona Scott Morton of Yale University, said the person.
The case comes more than a year after T-Mobile and Sprint announced the deal, stating that together they could compete better with Verizon and AT & T as they accelerated deployment of the next generation of wireless technology known as 5G. Although a previous attempt at a merger was thwarted by Obama administration officials, T-Mobile and Sprint were betting on a more receptive audience of the Trump administration.
When the case is closed, the fate of the arrest will be decided by a federal judge, who must decide whether or not to be blocked for antitrust reasons. The companies can still reach an agreement before the case is tried.
If carriers are prevented from completing the deal, they will be left alone to compete in a mature wireless market while financing expensive investments in the development of their own 5G networks.
Sprint's challenges are bigger. Although it became profitable last year after a decade of losses, it warned the FCC that without a deal, it sees "no obvious path to solve the major business challenges."
T-Mobile CEO John Legere took the lead on the Capitol – and social media – defending the deal. He said the transaction would "overcharge" his company, which made him an independent competitor in the market. The centerpiece of his case was that the combination with Sprint would help the US leadership in 5G technology, a priority for the Trump administration.
This argument was rejected by opponents of the agreement, including consumer groups and the Communications Workers of America, which said the merger would reduce choice, lead to higher cellphone bills and would result in job losses.
Getting an agreement with T-Mobile was a long-standing plan of Masayoshi Son, chairman of SoftBank Group Corp., which owns Sprint. In 2014, he arrived in Washington promising a price war if he could get T-Mobile and personally pressure US authorities on a potential union. If the deal is completed, Deutsche Telekom, owner of T-Mobile, will hold a 42% stake, while SoftBank will hold 27%.
(Updates with backround.)
– With the help of Scott Moritz.
To contact the editors responsible for this story: Sara Forden at [email protected], Joe Schneider
<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "For more articles like this, please visit us in bloomberg.com"data-reactid =" 53 "> For more articles like this, please visit us at bloomberg.com
© 2019 Bloomberg L.P.