While the world waits for a judge’s decision on whether the proposed merger of T-Mobile and Sprint will be allowed to go forward, analysts at New Street Research say the likelihood that either side ends up appealing is low.
The companies’ lawyers and those for the 14 state attorneys general that are fighting the merger gave their closing arguments before U.S. District Court Judge Victor Marrero last week in a Manhattan court room. The judge is expected to issue his decision next month.
Of course, the decision to appeal depends in part on the reasoning of the judge’s decision, but “we think an appeal is unlikely,” wrote New Street’s Blair Levin in a January 20 investment note. “In the case of the states, we think that if the judge rules against them, the combination of a low likelihood of victory and political considerations probably weigh against appealing.”
The one exception, he added, would be if the judge bases his opinion on the argument that courts should defer to the judgement of the U.S. Department of Justice (DOJ) and Federal Communications Commission (FCC), both of which conditionally approved the deal. If the judge were to base his decision on that as opposed to simply determining whether the merger violates the Clayton Act, the states will have a strong institutional incentive to appeal “to overturn what we think would be new and problematic law for the states.”
As for the companies, he wrote, “We think that if the judge rules against them, he can do so in a way in which the odds of overturning the decision are very low. Moreover, both T-Mobile and Sprint would have business reasons for wanting to have clarity about the prospects of the merger before they, and all the other potential users of spectrum, have to commit to purchasing spectrum in the upcoming CBRS and C-Band auctions.”
The CBRS auction for Priority Access Licenses (PALs) is set to begin June 25, and the FCC has said it will commence a C-band auction by the end of this year, although it’s still working out details, such as how incumbent C-band satellite companies will be relocated and compensated.
With the average length of time in the Second Circuit from notice of appeal to a decision being 11.3 months, “it is impossible for the appeal to be over before the CBRS auction, and highly likely an appeal would still be pending as the C-Band auction begins. There are business reasons to continue the appeal, but we believe the reasons on the other side of the ledger are more compelling,” Levin wrote.
Led by New York and California, the states opposed to the merger filed suit in June to block it on the grounds it’s anti-competitive and will harm consumers. When the DOJ announced its approval conditioned on the creation of Dish Network as a fourth competitor, the states cited concerns about the viability of Dish in such a situation. During the trial, they continued to question Dish’s ability to essentially replace Sprint, which is already established, while lawyers for the companies argued that Dish has incentives to compete and build out a standalone 5G network.
The analysts at New Street, who attended the trial proceedings, have said they think the states are more likely than not to win, although it remains close. Of course, executives at the companies themselves continue to express confidence in their case and they weren’t commenting last week about whether they’d appeal if they were to lose.
The case has been unprecedented in a number of ways, including the states arguing in opposition to two federal agencies that approved the deal. Although the DOJ and FCC are not parties to the case, they filed a statement of interest last month asking the court to defer to the federal government’s view that the proposed merger should be approved.