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Multistate AG Lawsuit Could Thwart Sprint-T-Mobile Megamerger

Sprint and T-Mobile still face a major regulatory obstacle.

September 3, 2019

7 Min Read
Lawsuit
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Josh Long

By Josh Long

Despite reaching an agreement this summer with the U.S. Department of Justice to salvage their planned merger, Sprint and T-Mobile still face a major regulatory obstacle.

A group of state attorneys general from New York to California claim the deal will harm competition, limiting access to affordable wireless service.

If Sprint and T-Mobile are unable to assuage concerns raised by the state AGs in the coming months, a federal court is likely to decide the fate of a merger combining two of the nation’s largest wireless carriers. A trial is scheduled to begin Dec. 9 in the U.S. District Court for the Southern District of New York, a spokesperson for the New York Attorney General’s Office said.

Illinois on Tuesday became the 17th state to join the multistate suit aiming to block the deal. A  coalition in opposition to the merger is said to represent half of the U.S. population.

“If left unchallenged, the current plan will result in reduced access to affordable wireless service in Oregon (the 16th state to join the suit last month) — and higher prices,” Oregon Attorney General Ellen Rosenblum asserted in a statement. “Neither is acceptable.”

Sprint and T-Mobile are expected to try to find a way to alleviate the states’ concerns before the trial starts. But a resolution to the lawsuit is “anybody’s guess,” said Keith Snyder, an equity analyst with CFRA Research, an investment research provider.

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CFRA Research’s Keith Snyder

“At some level, I don’t know if there’s a way that will both appease the AGs but also be financially feasible,” Snyder said in an interview with Channel Partners. “At some point, no deal is better than a really bad one.”

The Justice Department and five states – Kansas, Nebraska, Ohio, Oklahoma and South Dakota – in July brought a civil antitrust suit in Washington, D.C., to block the merger and simultaneously filed a proposed settlement to resolve their concerns.

“By combining two of the only four national mobile facilities-based wireless carriers, without appropriate remedies, the merger of T-Mobile and Sprint would extinguish substantial competition,” the complaint stated.

Key to the proposed settlement: Dish Network, the Colorado-based satellite TV provider. Sprint and T-Mobile have agreed to divest Sprint’s prepaid business and certain spectrum assets while making available to Dish at least 20,000 cell sites and hundreds of retail locations.

Snyder predicts Dish will compete on price if the merger is ultimately approved.

“Dish is going to come out swinging as the smallest competitor with the poorest network standing,” the analyst said. “They are going to drive the price really far down just to attract customers.”

If the nation’s third- and fourth-largest wireless providers merge, Deutsche Telekom would become the largest shareholder of the combined company.

“The New T-Mobile will be a fierce competitor in wireless, broadband and beyond,” John Legere, CEO of T-Mobile US, and Marcelo Claure, executive chairman of Sprint, wrote in an open letter to consumers. “We will fight for consumers and lower prices while delivering more value.”

But New York Attorney General Letitia James and her colleagues in more than a dozen states, including California – home to the nation’s largest population of nearly 40 million people – remain skeptical about the impact of the deal, even with efforts to make Dish a competitor in the wireless industry.

“Dish has never shown any inclination or ability to build a nationwide mobile network on its own and has repeatedly broken assurances to the Federal Communications Commission about deployment of its spectrum,” James’ office proclaimed in a news release after the Justice Department announced the proposed settlement.

The state AGs also are concerned Dish would rely on T-Mobile’s “network for the foreseeable future,” according to the news release, which also expressed skepticism Sprint and T-Mobile “will act directly against its own economic interests by helping transform Dish into …

… an independent competitor that rivals this new company.”

Dish contested concerns raised by the state AGs that it has broken assurances to the FCC.

“Dish has never missed a final terrestrial spectrum buildout deadline,” said Jeff Blum, Dish’s senior vice president of public policy and government affairs, in an email to Channel Partners through a spokesman. “Rather, Dish’s March 2017 decision to forgo the interim milestones for its AWS-4 and 700 MHz spectrum actually accelerated its final buildout requirements. Additionally, as part of the proposed T-Mobile/Sprint merger settlement, Dish has committed to the FCC to deploy its 600 MHz spectrum four years earlier than previously required. This is part of Dish’s commitment to the FCC to deploy a 5G broadband network to at least 70 percent of the U.S. population by June 2023.”

Sprint declined to comment on the multistate suit, and T-Mobile did not respond to an email.

Sprint and T-Mobile in 2018 filed a public interest statement with the Federal Communications Commission, requesting the agency’s approval of the merger to create the “New T-Mobile.”

“This proposed merger,” the mobile operators asserted in the public interest statement, “is necessary to accomplish a goal critical to enhancing consumer welfare in this country: the rapid and widespread deployment of 5G networks in a market structure that spurs rivals to invest in a huge increase in capacity, and, correspondingly, to drop tremendously the price of data per gigabyte.”

In August, FCC Chairman Ajit Pai concluded the Sprint-T-Mobile combination is in the public interest. He shared with his colleagues a draft order that would approve the merger, subject to conditions.

“After one of the most exhaustive merger reviews in Commission history, the evidence conclusively demonstrates that this transaction will bring fast 5G wireless service to many more Americans and help close the digital divide in rural areas,” Pai said in a statement. “Moreover, with the conditions included in this draft order, the merger will promote robust competition in mobile broadband, put critical midband spectrum to use, and bring new competition to the fixed broadband market.”

While it’s unclear how a deal could be restructured to placate the state AGs, their concerns are fairly apparent.

“At the core of it is Dish won’t be a suitable fourth competitor in the way that Sprint is right now,” Snyder said. Dish, the analyst added, “has zero experience building mobile networks.”

As the December trial inches closer, Sprint and T-Mobile aren’t the only ones likely to feel pressure. Snyder observed Dish is approaching a deadline in 2020 in which it will lose its rights to spectrum, per government rules, if it doesn’t deploy it.

Since 2008, Dish has directly invested more than $11 billion to acquire wireless spectrum licenses and related assets, according to a Securities and Exchange Commission filing. In addition during 2015, through its wholly owned subsidiaries, Dish made more than $10 billion in certain non-controlling investments in entities related to certain AWS-3 wireless spectrum licenses, the filing noted.

For example, the company paid $712 million to acquire certain wireless licenses in the 700 MHz E Block, subject to certain build-out requirements. But Dish warned its “authorization may terminate” for geographic portions of license areas in which it fails to satisfy the conditions.

The “wireless spectrum licenses also expire in March 2020 unless they are renewed by the FCC,” the regulatory filing added.

Dish also is approaching a March 2020 deadline for providing terrestrial signal coverage related to AWS-4 licenses previously held by DBSD North America and TerreStar Networks.

Blum said the settlement with the Justice Department, along with Dish’s commitments to the FCC, “position Dish to become the fourth facilities-based network operator, preserving competition for consumers both today and as the 5G ecosystem develops.”

“Consistent with our history as an innovative and disruptive company, this deployment will expand and promote American leadership in 5G, in alignment with the goals of the FCC,” he added.

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