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States File Suit To Block Phone Merger -- WSJ

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06/12/2019 | 02:48am EDT

Challenge to the Sprint, T-Mobile deal precedes antitrust ruling by the Justice Department

By Drew FitzGerald and Brent Kendall 

A group of state attorneys general filed a lawsuit on Tuesday to block the proposed merger of T-Mobile US Inc. and Sprint Corp., a highly unusual challenge that comes as federal antitrust officials are still reviewing the more than $26 billion deal.

The suit alleges that the union of the third- and fourth-largest wireless carriers in the U.S. would drive up prices for cellphone services. It was filed in a federal court in New York and was led by the attorneys general of New York and California.

The proposed merger would result in lost jobs, price increases and less improvement in services, New York Attorney General Letitia James said at a news conference. "The deal is bad for consumers, it's bad for innovation, it's bad for workers," she said.

Shares of Sprint fell 6%, while T-Mobile slipped 1.6% Tuesday. Officials for the two companies didn't respond to requests for comment.

The agreement T-Mobile struck with Sprint in April 2018 was the culmination of years of on-again, off-again talks between the rivals, which are seeking economies of scale in a mature U.S. wireless market dominated by Verizon Communications Inc. and AT&T Inc. The smaller companies have tried more than once to strike a deal, only to founder on terms or fears that the Justice Department would object to their merging.

Tuesday's pre-emptive attack by the states comes as their federal counterparts at the U.S. Department of Justice, which must also pass judgment on the transaction, continue to review the wireless merger.

"There's no rule or regulation that says we have to wait for DOJ," Ms. James said.

The states didn't give the Justice Department advance notice before filing their lawsuit, according to people familiar with the matter.

News of the state-led complaint broke as high-level company representatives continued discussions on the merger with Justice Department lawyers on Tuesday, according to people familiar with the talks.

Although the Justice Department and Federal Trade Commission are the principal merger authorities, state attorneys general have the authority to challenge acquisitions under antitrust laws. But they usually do so only in partnership with federal counterparts. When a state has gone it alone, it has typically been to challenge a deal with deep local connections, such as a hospital-industry merger.

Wayne State University law professor Stephen Calkins said he couldn't recall state attorneys general ever challenging a merger of this size and prominence on their own, adding it was even more unusual for the states to act while the Justice Department review was pending.

"It's really quite remarkable," Mr. Calkins said.

Attorneys general from Colorado, the District of Columbia, Maryland, Michigan, Mississippi, Connecticut, Virginia and Wisconsin joined the lawsuit filed Tuesday. The state and District of Columbia officials are all Democrats.

If the wireless firms win formal approval from federal regulators, including the Federal Communications Commission, they could proceed to close their merger without waiting on the states' litigation -- unless a federal judge blocks them from doing so.

Xavier Becerra, California's attorney general, said the states would seek a preliminary injunction to keep the companies separate.

The litigation could create months of legal uncertainty for the deal's prospects.

The companies got a leg up last month when FCC Chairman Ajit Pai, a Republican, unilaterally threw his support behind the deal in exchange for their commitment to invest in 5G infrastructure covering rural areas. The companies also promised to shed Sprint's Boost Mobile prepaid cellphone service.

The Justice Department has yet to publicly comment on those concessions, though The Wall Street Journal previously reported that department officials believed the FCC package wasn't enough to protect competition in the wireless industry.

A Justice Department spokesman declined to comment.

Mr. Becerra said Mr. Pai's actions at the FCC were one of the triggers for the states' decision to move forward. State officials had substantive conversations with their Justice Department counterparts, though "they don't tell us what to do" and "we don't tell them what to do," Mr. Becerra said.

The Obama-era Justice Department made clear that further wireless consolidation was a non-starter. But T-Mobile and Sprint executives last year decided to make their case to the Trump administration, saying that without a merger they risked falling behind Verizon and AT&T as the industry upgrades to 5G networks. Combining the smaller companies would arm them with a swath of wireless-spectrum licenses considered ideal for 5G, they said.

Sprint is controlled by Japan's SoftBank Group Corp., whose chairman, Masayoshi Son, has long sought to combine the U.S. wireless company with T-Mobile, whose largest shareholder is Deutsche Telekom AG. Sprint has been struggling to hold on to customers, while T-Mobile has been gaining market share.

The recent flurry of regulatory developments has worked to box in Justice Department antitrust chief Makan Delrahim on both his left and his right. While the states' lawsuit could put heat on Mr. Delrahim's antitrust division to file its own challenge, the department's review has been complicated by the pronouncement by the FCC's Republican majority that the merger is in the public's interest.

The Justice Department has never litigated a challenge against a merger that the FCC has found to be good for consumers, so any such court case could place the department in uncharted waters.

Wireless operators have tried different combinations to shrink the number of national U.S. players down to three, but so far they have all been foiled. In 2011, the Justice Department and FCC opposed AT&T's plan to buy T-Mobile, warning the merger would "significantly diminish competition."

--Corinne Ramey contributed to this article.

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and Brent Kendall at brent.kendall@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
5G NETWORKS LTD 0.00% 0.855 End-of-day quote.103.57%
DEUTSCHE TELEKOM AG 0.85% 15.378 Delayed Quote.2.89%
DEUTSCHE TELEKOM AG 0.43% 15.35 Delayed Quote.3.14%
SOFTBANK GROUP CORP 0.17% 4624 End-of-day quote.-33.99%
SPRINT CORP -2.37% 6.58 Delayed Quote.15.81%
T-MOBILE US -0.51% 80.59 Delayed Quote.27.34%
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EBIT 2020 2 274 M
Net income 2020 -546 M
Debt 2020 36 505 M
Yield 2020 -
P/E ratio 2020 -46,1x
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