As some analysts expect today’s testimony may be the most pivotal to date in the T-Mobile/Sprint merger trial, Raymond James earlier this week lowered its odds of the deal getting approved from 85% to 55%.
“We had hoped to see significantly more state AGs reach agreements with TMUS/S and drop out of the state AG lawsuit opposing the merger,” wrote analyst Ric Prentiss of Raymond James. “But as the trial started Monday, there were still 14 democratic state AGs, including D.C., suing to block the deal.”
Additionally, “we felt that remedy #3 (remedy #1 to gain FCC approval and remedy #2 to garner DoJ approval) would be very important to appease many, if not all, of the opposing state AGs by offering structural solutions to address the concerns that DISH is not a real/credible/quick enough #4 facilities-based nationwide (NW) 5G Mobile Network Operator (MNO),” he wrote in a note to investors on Tuesday. “As a result of the large number of state AGs still fighting the merger and the current lack of a settlement #3, we are lowering our probability of deal approval from 85% to 55%.”
After 20 months of merger review, Prentiss is encouraged that Judge Victor Marrero started the case this week on a fast pace by asking both parties to skip opening arguments, trim witness lists to avoid redundancy and wrap up witness testimonies quickly, with the court able to schedule Dec. 23 as an additional day, if necessary. The hope is that the case, which is being tried at the U.S. District Court for the Southern District of New York, will go to the judge before Christmas.
In a note to clients today, New Street Research analyst Blair Levin said the companies were due to do their cross-examination of state economic expert Carl Shapiro today, in what the New Street analysts think will be the most pivotal testimony to date.
“If the companies succeed in undercutting his market analysis and/or harms, their chances of winning rise significantly,” Levin wrote. “If, however, his conclusions survive the cross examination, the companies then have to either prevail on the efficiencies or the fix,” he said, adding that the judge is already showing signs of skepticism to the fix, which involves setting up Dish Network as an MVNO while it builds out its own facilities-based network.
At one point, the judge again asked about conflicts of offering an MVNO to facilitate a competitor. As Shapiro was asserting that T-Mobile’s wholesale fee from Dish would diminish its incentives to compete for Dish subscribers, the judge stated: “It’s like a built-in conflict of interest,” according to Levin.
“We found this particularly significant because on Tuesday, the judge made a similar point to the DT CEO, telling him that T-Mobile wouldn’t want to let Dish ‘be too successful.’” The independence of the new competitor is one of the most critical factors courts look to in determining whether to allow the fix, Levin noted. “The judge seems already to be focused on that point, which suggests he already has skepticism of the fix.”
In a moment that garnered a lot of attention, Sprint’s VP of Network Development/Engineering Jay Bluhm was asked what the network challenges said about Sprint’s future. Blumn responded that Sprint will “cease to be viable within the next two years.” While that provided some drama in the trial, “we don’t expect it to actually influence the outcome,” Levin wrote, noting his projections are at odds with other company documents as well as Bluhm’s own testimony in another case, which involved Sprint’s suit against AT&T on the “5GE” label eight months ago, as well as Shapiro’s analysis.
As for T-Mobile executives presenting an optimistic face at the outset of the trial, the New Street analyst noted that the most likely reason for that is they’re just doing their jobs. Earlier this week at an investor conference, T-Mobile President and COO Mike Sievert said the team “feels great” about how the first day of the trial went and that they have a “fantastic” case—which wasn't an unexpected response given the circumstances.
T-Mobile CEO John Legere is expected to testify before the week’s end, possibly today, which pretty much guarantees more drama in the courtroom.