Nine states and the District of Columbia filed suit Tuesday to block T-Mobile and Sprint's planned $26.5 billion merger, complicating the companies’ path to completing the deal.
The merger would cut the number of major wireless carriers in the US from four to three, but the two companies have argued the deal would help consumers by enabling the companies to expand coverage and build a nationwide 5G network more quickly than they would be able to on their own.
Federal Communications Commission chair Ajit Pai voiced his support for the merger last month after T-Mobile and Sprint promised to spin off Sprint's prepaid service Boost Mobile if the merger is approved. The two companies have also pledged not to raise prices for three years and to expand rural coverage by building a 5G wireless network that will cover 97 percent of the US population within three years and 99 percent of the country within six years.
But an investigation by the attorneys general of California, Colorado, Connecticut, the District of Columbia, Maryland, Michigan, Mississippi, New York, Virginia, and Wisconsin concluded that the promises won't make up for the reduced competition in the market. The lawsuit argues that intense competition between T-Mobile and Sprint has led to lower prices for consumers; that a promise not to raise prices isn't a promise to further lower prices; and that the combined company would have every incentive to raise prices and reduce quality. The suit says an analysis based on estimates by the companies’ own economists suggests the merger would cost T-Mobile and Sprint subscribers $4.5 billion annually. The states also worry the merger would result in layoffs at retail stores.
"The T-Mobile and Sprint merger would not only cause irreparable harm to mobile subscribers nationwide by cutting access to affordable, reliable wireless service for millions of Americans, but would particularly affect lower-income and minority communities here in New York and in urban areas across the country," New York Attorney General Letitia James said in a statement. "This is exactly the sort of consumer-harming, job-killing megamerger our antitrust laws were designed to prevent."
According to the suit, T-Mobile plans to decommission a number of Sprint cell sites and hasn't provided information on plans to expand coverage in areas that are not already covered by T-Mobile and Sprint. A statement from the New York attorney general's office argues that carriers built 4G networks in a highly competitive market and "continued competition, not concentration, is most likely to spur rapid development of a nationwide 5G network and other innovations."
In a statement, Carri Bennet, general counsel for the Rural Wireless Association, called the merger "bad for competition, and it is bad for consumers, especially those living in or traveling through rural areas.” She said the FCC’s review of the deal “has not been transparent, and the FCC appears to be blindly accepting New T-Mobile’s words as truth."
T-Mobile and Sprint did not respond to request for comment.
In addition to FCC approval, T-Mobile and Sprint need approval from the Department of Justice. Bloomberg reports that the department wants more concessions from the companies to bless the deal, such as spinning off enough divisions to create a new fourth carrier.
Randy Gordon, an antitrust attorney at Barnes & Thornburg, says states typically work with the DOJ or the Federal Trade Commission to bring antitrust cases, but they have authority to challenge mergers under the federal Clayton Antitrust Act. If the states' suit is successful, that would stop the deal.
The suit is another example of how states are pushing for stricter oversight of the telecommunications industry than the FCC. In early 2018, a coalition of 21 states filed suit against the FCC in an attempt to block the agency's decision to jettison its net neutrality rules, forbidding internet providers from blocking or otherwise discriminating against lawful content. A federal court held a hearing on the case in February but hasn’t issued a ruling yet.
Several states, including California, New Jersey, and Washington, passed their own state-level net neutrality protections, though California's law remains on hold while the federal court mulls the suit against the FCC. California also passed a data privacy law last year over the objections of broadband providers.