T-Mobile/Sprint merger opponents say feds’ review was ‘cursory’

In response to a court filing by the U.S. government last month, the dozen or so states opposed to the merger of T-Mobile and Sprint this week provided several reasons why the judge should reject the feds’ arguments, including that the federal government approved the merger with “what appears to be only a cursory examination” of the approval conditions.

The states’ filing comes in response to a “Statement of Interest” filing made last month on behalf of the U.S. Department of Justice (DoJ) and Federal Communications Commission (FCC). The DoJ and FCC, which are not parties to the litigation, essentially said they are the expert agencies on the issues surrounding the merger and therefore their decisions should stick.

The states opposed to the merger and the companies that are for it—which include T-Mobile, Sprint, Deutsche Telekom (DT) and SoftBank—presented two weeks of testimony in December. U.S. District Court Judge Victor Marrero is presiding over the case in Manhattan and will make the final decision, which could be appealed.

States fight to block

The plaintiff states say they have a unique and comprehensive understanding of the public interest at stake in the merger and filed their opposition after a thorough investigation. The states, led by New York and California, said it’s natural that when there are multiple antitrust enforcers, different enforcers will reach different conclusions about competitive effects. “But it is the court—not any federal agency, or any other enforcer—that has the final say,” they wrote.

The states, which also include Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Oregon, Pennsylvania, Virginia, Wisconsin and the District of Columbia, also said the federal government’s contention that they lack a national perspective is wrong. The plaintiff states comprise a broad cross-section of the nation and contain 43% of the national population. “The population of the plaintiff states is almost twice as large as the population of the states that have joined the DoJ settlement approving the merger,” they wrote in Wednesday’s filing.

The DoJ’s antitrust division, headed by Makan Delrahim, conducted a 15-month investigation of its own into the transaction and found that T-Mobile’s acquisition of Sprint, if not remedied, likely would substantially lessen competition in the retail mobile wireless service market in the U.S. However, with the appropriate relief, the merger would yield “significant efficiencies” that would benefit consumers nationwide, according to the agency.

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The opposing states say the FCC, for its part, approved the merger conditions, including the divestiture of Sprint’s prepaid assets and license transfers to Dish Network, but some of those conditions remain pending and the FCC didn’t undertake the sort of extensive investigation that the states have done. They argue that their investigation uncovered several critical pieces of evidence that show there’s considerable risk that the merging parties and Dish will not fulfill the promises they’ve made, which serve as the basis for the DoJ and FCC approvals.

“Both T-Mobile and Sprint have expressed doubt that DISH will become a serious competitor in the national wireless market,” the states wrote, adding that their investigation uncovered other information that was not available to the DoJ or the FCC that altered the competitive balance and factored into the states’ assessment that the merger is anticompetitive and should be blocked.

For example, they procured additional documents from DT, the controlling shareholder of T-Mobile, and testimony from DT executives, including CEO Timotheus Höttges, who acknowledged under oath that reducing price competition was one of the reasons for the T-Mobile-Sprint merger.

Findings of fact from both sides

Both parties on Wednesday filed their proposed findings of fact and conclusions, which were limited to 30 pages each. Prior to that, T-Mobile President/COO and CEO-in-waiting Mike Sievert, during an investor conference on Tuesday, expressed confidence that the companies will prevail in court, saying “right is on our side,” and praising the lawyers in the case.

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The companies are not asserting a “failing firm” defense, the states acknowledged in their findings of fact filing. However, they point to the companies’ contention that Sprint is so weak that it will not be a meaningful competitor in the future, and therefore, eliminating Sprint as a competitor will not substantially lessen competition.

Alternatively, the states pointed to testimony showing Sprint is financially stable and that it could continue to be a national carrier, covering 93% of the U.S. population, despite some company statements to the contrary.

“Sprint’s current situation compares quite favorably to T-Mobile’s in 2011,” when T-Mobile was hemorrhaging customers and had a high churn rate and inferior network, the states wrote. “Just as T-Mobile overcame the challenges it faced in 2011, Sprint can overcome the challenges it is currently facing. Indeed, Sprint has developed a plan to spend approximately $5 billion a year over five years to improve its network.”

Sprint also has a number of strategic alternatives, including a merger or MVNO with a cable company, they said. In 2018, Sprint also contemplated a merger with Dish, proposing the merged company could sell spectrum for financing while still deploying the country’s best 5G network, the states said, citing witness testimony.

To the Dish remedy, the states reiterated their position that Dish’s entrance into the market will not be “timely, likely, or sufficient to replace the competitive significance of Sprint.” Dish is a satellite TV provider with no experience in the retail mobile wireless industry; it has no retail wireless subscribers, no wireless network or stores and no brand associated with the service, they added.

Arguing for the deal

For their part, the companies argue that Dish has an extensive team of experienced engineers and business people working on its retail mobile wireless business. Dish plans to deploy 50,000 cell sites by 2025 and it has identified more than 32,000 towers on which it could quickly deploy its equipment; it has master agreements with the owners of those towers. Dish also will have available all of the cell sites—about 35,000—that the new T-Mobile decommissions.

With no legacy technologies to support, Dish’s network costs will be comparatively low. If Dish doesn’t honor its commitments to the FCC and DoJ, it would suffer significant fines, lose billions of dollars of spectrum and could be held in contempt of court. Penalties of noncompliance aside, “DISH has a strong profit incentive to build the 5G network it has committed to build,” the companies wrote in their findings of fact document.  

They also said that a standalone Sprint will be a significantly diminished competitor. Sprint has been losing Sprint-branded phone subscribers over the past several years and its postpaid churn is higher than it’s ever been—double that of AT&T, Verizon and T-Mobile. Without the merger, Sprint is likely to become mostly a regional network operator, they argued.

The companies also assert that MVNOs are independent competitors and that cable companies Comcast, Charter Communications and Altice constitute competition. They say the transaction will result in consumers paying lower prices for higher quality network services because the new T-Mobile network will have substantially more capacity than the combined capacity of the networks that either company could deploy on a standalone basis. That will give the new company the ability and incentive to continues its disruptive “un-carrier” strategy to the benefit of consumers.

“Absent the merger and attendant remedies, consumers would be deprived of the benefits of the capacity and competition DISH would bring into the market, as DISH otherwise has no plan to enter the retail mobile wireless market and would likely sell enterprise services rather than consumer services,” the companies wrote.

Both sides will make their final arguments to the judge on Wednesday, Jan. 15, with a ruling possible before the end of February.