Texas Attorney General Ken Paxton announced today that his office reached a settlement with T-Mobile to resolve the state’s antitrust claims against the proposed merger of Sprint and T-Mobile.
Under the agreement, the New T-Mobile cannot increase prices for wireless services on Texans for five years after the proposed merger is complete. In addition, the agreement commits the New T-Mobile to build out a 5G network throughout Texas, including rural areas, during the next six years.
“My office is responsible for protecting consumers and this settlement ensures that the New T-Mobile is not in a position to overcharge Texans for wireless service, and at the same time, obligates the New T-Mobile to invest in a high-quality 5G network that will serve the needs of Texas’ growing economy, or face stiff financial penalties,” Paxton said in a statement. “Our objectives in joining the initial lawsuit were to protect Texans from unnecessary price hikes and to ensure that Texans living in both urban and rural areas will not get stuck with substandard service as the market for wireless telecommunication services evolves to adopt new standards of technology with the power to transform the Texas economy. This agreement achieves those objectives.”
Incredible news that @TXAG Paxton is withdrawing from the State AG lawsuit to block the @TMobile & @Sprint merger! Texas knows that the #NewTMobile will create jobs and deliver 5G to rural areas of the state and beyond! Key info: https://t.co/szV2VJEcxw— John Legere (@JohnLegere) November 25, 2019
According to the Texas AG’s office, these are some of the terms required of the New T-Mobile, some more specific than others:
- Give all Texas customers access to the same or better unlimited talk, text, and data rate plans as those offered by T-Mobile as of the date of the agreement for the next five years;
- Give all Texas customers access to T-Mobile limited data rate plans at a cost far below what is currently offered in the industry;
- Commit to provide 5G wireless broadband coverage to areas where most Texans live, including most Texans living in rural portions of the state within the next three years, and to expand that 5G coverage dramatically within the next six years;
- Offer Texas residents who are currently employed by Sprint and T-Mobile substantially similar employment with the New T-Mobile.
Wells Fargo Securities analysts, led by senior analyst Jennifer Fritzsche, said it was surprising that Texas, led by a Republican governor, ever joined the fray to begin with given the deal is mostly being fought by Democratic states.
“Although the number of states fighting the deal has declined, the case will still go to trial if even one state remains in the lawsuit,” wrote the Wells Fargo analysts in a note to investors today. “In our view, this issue has become quite political – particularly with only Democratic AGs remaining opposed to a settlement. As long as Democratic-led states like New York (leading the case) and California remain in the suit, it seems a settlement remains unlikely with each passing day, particularly with only 9 business days (including today) before the trial is set to begin on 12/9.”
While the Texas settlement follows similar deals with other states, New York Attorney General Letitia James last week indicated T-Mobile’s latest promises don’t address the concerns the group of state AGs have about the proposed merger, namely that it poses antitrust violations. New York and California led a delegation of states suing to block the merger in June, and that trial is due to start Dec. 9.
T-Mobile announced earlier this month that following the completion of its merger, the New T-Mobile will locate its fourth of five planned Customer Experience Centers (CEC) in New York’s Nassau County. The three previously announced CEC locations are Rochester, New York, as well as Overland Park, Kansas, and Kingsburg, California.
A week prior to that announcement, T-Mobile came out with a new three-pronged pledge designed to win favor for the merger, including low-cost prepaid plans and deals for first responders and families with school-age children. When the states’ case against the T-Mobile deal was announced, James said the deal would be especially bad for lower-income and minority communities in New York, as well as kill jobs and hurt independent dealers.
Succession ahead of trial
Last week, T-Mobile announced what many had anticipated: that CEO John Legere would hand over the CEO role to current president and COO Mike Sievert, who’s taking the helm in May 2020. Legere, who helped shape T-Mobile into a forceful third wireless competitor over his seven-year tenure, plans to remain on the board when his contract expires at the end of April.
As for the timing of the announcement, Legere said it’s been in the works since 2012. “It’s Mike’s time,” he said during a conference call with analysts last week. “He’s done all the work. It’s time for him to lead.”
Going into trial, possibly, “We also understood that in trying to find weaknesses of the story that we’re telling, one of the things people would say is, ‘Oh well, John’s contract ends in April, how do we know who’s coming in? Maybe it’s going to be somebody who doesn’t believe in anything. How do we know the un-carrier strategy is going to continue?’
“These are important components of why this deal should be approved," Legere added. "The second that John’s done, Mike Sievert’s coming in and he not only believes in and supports, he jointly hand in hand created and architected all of these un-carrier moves. That’s the why now. Trial starts December 9, we want that done before then, we think it’s a pertinent fact.”
In a research note to investors over this past weekend, New Street Research analysts said one of the most favorable elements of the trial for the companies is that there would be two very compelling witnesses—John Legere and Charlie Ergen—to give the vision and details of how T-Mobile and Dish Network would bring competition to the market.
“There will be no analogous witnesses who will testify as to how, if the deal is blocked, they would personally restructure Sprint so as to facilitate competition,” wrote New Street’s Blair Levin. “There will be expert testimony on different paths Sprint could take, but in a courtroom setting, such testimony is not nearly as good as an experienced CEO personally drawing the map they intend to follow for the Judge.”
“Legere’s announced retirement incrementally reduces his value on the witness stand,” he wrote, noting that Sievert could testify, but Legere is more tested in public forums facing hostile questioning. “It does not change any of the core antitrust facts or analysis but, as would be true of any setting, the credibility of one making projections of what will happen is undercut if the person has no personal role in making those projections come to pass.”
Article updated with additional analyst commentary.