Support for the 10 state attorneys general who filed a lawsuit Tuesday to block the merger of Sprint with T-Mobile came fast and furious from the deal’s opponents.
Attorney General of New York Letitia James and Attorney General of California Xavier Becerra filed the multi-state lawsuit, along with eight other state attorneys general. The complaint, filed in New York federal court in coordination with Colorado, Connecticut, the District of Columbia, Maryland, Michigan, Mississippi, Virginia and Wisconsin, alleges that the proposed $26.5 billion merger of two of the four largest national mobile network operators would violate anti-trust law.
James told reporters during a press conference that they had particular concerns about the prepaid segment of consumers who rely on T-Mobile and Sprint. As the parties have outlined thus far, Sprint’s Boost Mobile prepaid business would be divested, but that’s not going to help in the MVNO world where so many prepaid brands operate. Sprint and T-Mobile have been the most aggressive in terms of striking MVNO agreements, and eliminating one of them will bring that market essentially from two to one.
“The competition that exists between Sprint and T-Mobile through their prepaid brands will not be restored by divesting Boost Mobile,” the lawsuit states. “If Boost Mobile were divested, it would then operate as an MVNO. As a MVNO, Boost Mobile would be required to purchase network access from one of the three remaining MNOs, with that MNO controlling, indirectly, the prices Boost Mobile could charge, and the quality it could offer. Because Boost Mobile would not be able to compete on the basis of price or quality, it would not be a sufficient competitive constraint on the New T-Mobile.”
Sprint’s dire straights also aren’t deterring the states. T-Mobile CEO John Legere has argued that the combined company will create a third stronger competitor to go up against Verizon and AT&T.
The lawsuit points to Sprint’s most recent filings with the U.S. Securities and Exchange Commission indicating it is attracting new subscribers, and its revenue is growing. It also notes that SoftBank Group Corp., a multinational holding conglomerate in Japan, had revenues of $85 billion in fiscal year 2018 and SoftBank holds about 85% of Sprint’s stock.
Referring to the companies' promises of expanding 5G to more rural areas, James said it’s hard to believe a mega-merger would result in better rural coverage, and nothing in the proposed merger would expedite the building of more towers or a 5G network. T-Mobile has yet to provide plans to build new cell sites in areas that would not otherwise be served by T-Mobile or Sprint, and while they claim their pooled resources will help them, she noted that the U.S. was a leader in LTE amid stiff competition.
The Communications Workers of America (CWA), which has been one of the more vocal opponents throughout the process, joined James and others at the podium during the press conference.
“T-Mobile and Sprint are each other’s closest competitors, and their merger would clearly mean higher prices for consumers. It would also result in significant job loss for retail wireless workers due to the closing of duplicative stores,” said CWA President Chris Shelton in a statement. “Reducing the number of national wireless carriers from four to three would mean less competition in the wireless labor market, giving T-Mobile and other wireless companies more power to cut wages and benefits. T-Mobile and Sprint have a long history of interfering with their workers’ freedom to join a union. Without collective bargaining, T-Mobile and Sprint workers have limited ability to protect themselves from the negative impact of this merger.”
He added that the states’ action also sends a signal to the U.S. Department of Justice (DoJ) to take strong action to enforce anti-trust laws.
Federal Communications Commission Chairman Ajit Pai announced on May 20 that he would sign off on the deal with a set of conditions, including a commitment to build out 5G networks covering 85% of rural Americans within three years and covering 90% within six years. The deal hasn’t been the subject of a formal vote at the commission, but there are indications it would likely pass along party lines.
The DoJ staff reportedly raised red flags about going from four to three, but Makan Delrahim, Assistant Attorney General for the DoJ's Anti-trust Division, hasn’t announced his decision yet.
The states, however, don’t work on the same set of parameters as the FCC and DoJ, and while negotiations are ongoing, they decided the proposed commitments by the two companies are insufficient to protect competition.
The 4Competition Coalition said it was pleased the state attorneys general “have recognized that the consolidation of the wireless market that would result from this proposed merger is bad for American wireless users, workers, and competition. This deal would reduce choice, limit competitive pressures, and stifle innovation.”
New America’s Open Technology Institute (OTI) cheered the move on the part of the states.
“We applaud the states for standing up for the American people and urge the federal government to join their lawsuit,” said Joshua Stager, senior policy counsel at New America’s Open Technology Institute, in a statement. “The merger would be a disaster for consumers, workers, and competition… The Justice Department needs to do what it did in 2011 when AT&T and T-Mobile proposed merging: block the deal.”
But former FCC Commissioner Mignon Clyburn, a Democrat who has been acting as an advisor to T-Mobile, said she firmly believes a strong third nationwide wireless competitor would be in the public interest. “The T-Mobile-Sprint merger would help bridge the digital divide by accelerating inclusive 5G, and prioritizing affordable broadband access for underserved consumers in urban and rural America,” she said.
“Particularly for those on the wrong side of the digital divide, this lawsuit by a small number of state attorneys general would reinforce an unacceptable status quo, further entrench two telecom behemoths, and ensure those without next generation telecommunications opportunities today remain so tomorrow."