Nine states have filed a lawsuit to block the proposed merger between wireless carriers Sprint and T-Mobile. California, Colorado, Connecticut, the District of Columbia, Maryland, Michigan, Mississippi, New York, Virginia, and Wisconsin claim the merger would reduce competition and drive up the cost of cellphone service. The result would have a particularly tough impact on lower-income people.
“The T-Mobile and Sprint merger would not only cause irreparable harm to mobile subscribers nationwide by cutting access to affordable, reliable wireless service for millions of Americans, but would particularly affect lower-income and minority communities here in New York and in urban areas across the country,” said New York Attorney General Letitia James in a statement issued by the states.
California Attorney General Xavier Becerra said that the result would be a “compressed market with fewer choices and higher prices.”
One stated rationale for the merger is that the companies say it would help them with rolling out faster 5G mobile technology.
“Verizon and AT&T can finance a 5G rollout, but it’s not clear that these two companies can on their own,” said Martin Wolf, president of martinwolf M&A Advisors, an IT merger and acquisition consultancy. “And from a competitive perspective, I’d rather have three 5G providers than two, especially considering the US is behind the rest of the world in 5G. The principal beneficiaries of a successful, cost effective roll out are the under-served, the poor, the old and the rural.”
But others don’t necessarily agree. One concern is the so-called four-into-three scenario, where the third and fourth largest carriers would become a single company. “That raises competitive issues, particularly since numbers 3 and 4, particularly T-Mobile, has been a maverick in the marketplace and played a very pro-competitive role even as it’s gained market share,” said David Turetsky, a professor of practice at the University at Albany, SUNY and a former deputy assistant attorney general for antitrust in the Clinton administration’s Department of Justice. “T-Mobile plays a unique role in innovation. If you basically change the market dynamic, there’s no assurance that’s going to continue.”
As for 5G, “These carriers either by cooperating without merging or through other ways will have to do it, too,” Turetsky said. “I don’t see it as something that would only happen if there was a merger.”
Wolf called the actions by the attorneys general “disruptive” and “a political exercise, not an anti-competitive exercise.”
However, there is a history of attorneys general becoming involved in antitrust cases, according to Adam Candeub, a professor of law and director of the IP information and Communications Law Program at Michigan State University’s College of Law.
“They’re allowed to do it under the Clayton [Antitrust] Act” of 1914, Candeub said. “They see themselves protecting the interests of their citizens and if a merger affects them particularly hard, they say something.”
What has been unusual about this particular case is that both companies have significant foreign ownership: Deutsche Telekom for T-Mobile and SoftBank for Sprint. Also, although the DoJ hasn’t yet ruled on the proposal, Trump-appointed Federal Communications Commission Chairman Ajit Pai has already signaled that he would support the deal.
“That’s an unusual situation,” Turetsky said. “Usually the Department of Justice competes its investigation and determines what to do on the competitive front before the FCC takes action. We are somewhat straying from the typical sequence here. That’s also what the states are seeing and raising their concerns and leading them to file an antitrust case.”
More must-read stories from Coins2Day:
—A red flag to investors: The stock market may be hitting the “triple top”
—The Renault deal is dead, but Fiat Chrysler still needs a partner
—Many economists think the next recession will be before the 2020 election
—The S&P 500 has performed far worse under Trump than Obama
—Listen to our new audio briefing, Coins2Day 500 Daily
Don’t miss the daily Term Sheet, Coins2Day‘s newsletter on deals and dealmakers.
