Antitrust Law Daily Federal court explains its approval of consent decree allowing T-Mobile/Sprint merger
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Wednesday, April 15, 2020

Federal court explains its approval of consent decree allowing T-Mobile/Sprint merger

By E. Darius Sturmer, J.D.

Anticompetitive effects of reducing national wireless market from four to three competitors are sufficiently countered by divestitures, other remedies intended to prop DISH Network up as viable fourth competitor.

The federal district court in Washington, D.C. has issued its decision, explaining the recent approval under the Tunney Act of a U.S. consent decree allowing T-Mobile US, Inc. and Sprint Corporation to complete their merger. Entry of a final judgment conditioning the companies’ combination upon substantial divestitures to DISH Network Corporation that enable DISH to become a new fourth nationwide facilities-based wireless carrier serves the public interest by alleviating the anticompetitive effects that could have resulted from a reduction in the number of such carriers from four to three, the court said (U.S. v. Deutsche Telekom AG, April 14, 2020, Kelly, T.).

The merger, announced in April 2018, was finally completed on April 1, after the court’s approval of the consent decree resolved the antitrust concerns of the Justice Department and ten states. Under the settlement, "New T-Mobile" is required to divest assets including Sprint’s prepaid businesses, spectrum, towers, and retail operations, to DISH. The merged firm, which would account for roughly one-third of the national retail mobile wireless service market, would be owned 42% by Deutsche Telekom AG, T-Mobile’s controlling shareholder and 27% by SoftBank Group Corp., Sprint’s controlling shareholder.

DISH, which agreed to be bound by the consent decree as a party-defendant because its participation "is vital to [its] success[,]" will be required to offer nationwide postpaid retail wireless service within one year of the divestiture of the prepaid assets. T-Mobile and Sprint must permit DISH to operate as a "Full MVNO"—a mobile virtual network operator with some of its own facilities—on New T-Mobile’s network for at least seven years and may not reacquire the divested assets over that span.

Tunney Act approval. Approval of the proposed final judgment is in the public interest, the court concluded. The consent decree, which will last for seven years unless the parties notify the court after five years that it is no longer necessary, is reasonably designed to remedy the alleged loss of competition that the merger would otherwise cause in the United States’ retail mobile wireless market, the court said.

By eliminating one of only four national facilities-based wireless carriers, the merger would diminish head-to-head competition in an already concentrated market with high barriers to entry that "make it extremely unlikely that a new market entrant would appear out of the blue and compete meaningfully with the three remaining giants[,]" the court acknowledged. However, the parties offering of a series of remedies "intended to replace one competitor with another" included "several steps—outlined in clear, unambiguous language—that will facilitate DISH’s entry into and competition in the national retail mobile wireless market," the court added.

Whereas almost all the public comments and amicus curiae briefs the court received that opposed the merger focused on whether DISH would ultimately emerge as a genuine competitor, the court countered that "the problem the merger’s opponents face is that their arguments, and the predictive judgments on which they are based, run headlong into the parties’ representations and the deferential standard the court must apply. The court noted that most of the public comments it received supported the merger, and that it considered these as well.

Commenters alleging that the value of DISH’s spectrum assets and the nature of the FCC’s build-out requirements will not adequately encourage DISH to build the network rather than simply re-sell those assets failed to "sufficiently credit the measures in the proposed final judgment that altered DISH’s incentives," the court stated. The court also rejected other commenters’ postulations that the remedies were "too piecemeal" to enable DISH to fully replace the competition lost as a result of the merger or that DISH’s "lack of relevant experience" made such an undertaking "by its very nature simply too daunting." The commenters "simply have not explained why the United States’ predictions based on comprehensive information provided by DISH—backed up by the coercive enforcement mechanisms in the proposed Final Judgment—should be so discounted as to warrant rejecting the settlement," the court remarked.

The proposed final judgment included provisions reasonably designed to incentivize DISH to enter and compete in the retail mobile wireless market, the court decided. The terms of the settlement are detailed and contain specific timelines, as well as clear and specific about the assets to be divested, how the divestitures will occur, to whom they may be divested, the circumstances in which modifications could be made, and how judgments could be enforced, reasoned the court. The settlement includes enforcement measures and oversight by an independent trustee, and it preserves the court’s power to make modifications if necessary. Similar provisions have been deemed sufficient by other courts in the district, the court noted. Moreover, the government’s determination "that trial was a gamble not worth taking is not unreasonable," the court concluded.

The case is No. 1:19-cv-02232-TJK.

Attorneys: Makan Delrahim, U.S. Department of Justice, for the United States. Mark W. Nelson (Cleary, Gottlieb, Steen & Hamilton LLP) for Deutsche Telekom AG.

Companies: Deutsche Telekom AG; T-Mobile US, Inc.; Sprint Corp.; DISH Network Corp.

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