Antitrust Law Daily Justice Department, five states conditionally approve merger of T-Mobile and Sprint
Friday, July 26, 2019

Justice Department, five states conditionally approve merger of T-Mobile and Sprint

By Jeffrey May, J.D.

Multi-state effort to block the deal led by Democratic AGs will continue.

The U.S. Department of Justice announced today, that along with five states, it has reached a settlement with T-Mobile and Sprint regarding competition concerns over their proposed merger, which was announced in April 2018. Federal Communications Commission (FCC) clearance is expected to follow. The Justice Department filed a complaint and proposed final judgment in the federal district court in Washington, D.C. (U.S. v. Deutsche Telekom AG, Case No. 1:19-cv-02232-TJK).

According to the Department of Justice Antitrust Division, the proposed final judgment includes a substantial divestiture package in order to enable a viable facilities-based competitor to enter the market. That competitor would be satellite television provider DISH Network.

The settlement also is intended to facilitate the expeditious deployment of multiple high-quality 5G networks for the benefit of American consumers and entrepreneurs. T-Mobile and Sprint have argued that the merger is needed to bring 5G wireless services to consumers. In addition, they have said that the merger will place them in a better position to compete with the duopoly that is AT&T and Verizon.

The government contends that the merger would have eliminated competition between two of only four facilities-based suppliers of nationwide mobile wireless services without the relief obtained under the proposed settlement. According to the complaint, T-Mobile and Sprint both operate mobile networks and offer nationwide coverage to consumers, and they are particularly close competitors to each other for the roughly 30% of retail subscribers who purchase prepaid mobile wireless service. The combination of T-Mobile and Sprint would eliminate head-to-head competition between the companies and threaten the benefits that customers have realized from that competition in the form of lower prices and better service.

If approved by the federal district court, the final judgment will resolve the Justice Department’s antitrust concerns raised in the complaint.

Some have argued that the presence of T-Mobile and Sprint in the market has caused AT&T and Verizon to compete more aggressively. The concern has been that the proposed combination of T-Mobile and Sprint would drive up prices for consumers. Further, the idea that the merger is necessary for the deployment of 5G wireless technology has been debated. Some commenters have found it hard to accept the companies’ justification for the merger that a combined firm will be better positioned to make the investment.

Multi-state challenge continues. While the Justice Department settlement includes five states—all with Republican attorneys general—a separate multi-state action continues in the federal district court in New York City. Following the Justice Department’s announcement, the Democratic attorneys general behind the separate action said that they would continue the fight against the merger.

The plaintiffs in that lawsuit include California, Colorado, Connecticut, the District of Columbia, Hawaii, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nevada, New York, Virginia, and Wisconsin. They question whether DISH, which has never owned a mobile wireless business and has no experience building or operating a nationwide mobile wireless network, will be able to step up as a rival to the larger wireless firms.

Kansas AG Derek Schmidt, who represents one of the settling states, said that his office was "comfortable with assurances from T-Mobile, Sprint and Softbank leadership of the merged company’s commitment to Kansas and to investing in our state to improve services and expand competition that will benefit Kansas consumers." The merged company has pledged to at maintain its second headquarters in the state, according to the announcement. The four other participating state AGs represent Nebraska, Ohio, Oklahoma, and South Dakota.

While there is some bi-partisan support for the merger, including backing from Rep. Anna Eshoo (D., Cal.), the divide between the state AGs is marked. Christopher L. Sagers, James A. Thomas Professor of Law at Cleveland State University, sees this as a very significant aspect of today’s events.

"This particular case has set up a conflict between a GOP federal administration and state AGs of a kind that has not really existed since the 1980s, when a lot of state governments stepped up to make up for enforcement that they thought had been abandoned by the Reagan administration," said Sagers. He suggested that the Justice Department’s approval was "a very bad, very regrettable decision that promises severe consumer harm, perhaps well into the billions of dollars per year."

American Antitrust Institute President Diana Moss, a vocal opponent of the merger, also sees the multi-state enforcement action as "fill[ing] the void created by the federal government." She suggested that antitrust enforcement has sunk to a new low with the Justice Department’s decision on the T-Mobile/Sprint merger.

Regulators, lawmakers react. FCC Chairman Ajit Pai said today that he would soon present to his colleagues a draft order, consistent with the Justice Department’s filings, favorably resolving the FCC’s review of the transaction. He contended that FCC clearance was appropriate "[b]ecause of this transaction’s potential to help close the digital divide in rural America and maintain our nation’s leadership in 5G [and in light of] the commitments made by T-Mobile and Sprint to the FCC."

FCC Commissioner Jessica Rosenworcel, on the other hand, called for closer scrutiny. "Before the FCC votes on this new deal, the public should have the opportunity to weigh in and comment," she said. "Too much here has been done behind closed doors."

Sen. Mike Lee (R., Utah), chairman of the Senate Judiciary Committee’s antitrust subcommittee, also expressed skepticism about the proposed settlement. Lee was hopeful that the transaction would better position the merged firm to compete with Verizon and AT&T in the future; however, he said that he has "concerns whenever government joins hands with industry to cobble together a would-be competitor, particularly one who so stridently opposed the merger earlier this year." He added, "Time will tell whether this market intervention was sound, but it will no doubt invite similar gamesmanship in future antitrust reviews."

Amy Klobuchar (D., Minn.), ranking member on the antitrust subcommittee, supports the multi-state effort challenging the merger. She calledthe transaction "a bad deal . .. despite the parties’ promises and this proposed consent decree."

Hopeful statements from company executives. "Our goal was to ensure that the DOJ’s concerns were addressed while enabling us to deliver on every aspect of the synergies we promised to unlock ...and we did it," said T-Mobile CEO and New T-Mobile CEO John Legere in a statement released today. "It may have taken longer than expected by some, but today's results are a win-win for everyone involved. We cannot wait to get to work bringing this pro-consumer, pro-competition New T-Mobile 5G network to U.S. customers from coast to coast!"

"Today’s clearance from the DOJ, along with our anticipated approval from the FCC, will allow the U.S. to fiercely compete for 5G leadership," Sprint Executive Chairman Marcelo Claure added.

DISH Co-Founder and Chairman Charlie Ergen also weighed in. "The FCC and the DOJ are to be credited for laying the groundwork for an innovative 5G wireless ecosystem that will introduce new opportunities to American consumers and businesses, while enhancing competition in the wireless industry," said Ergen.

Next steps. The case has been assigned to Judge Timothy J. Kelly, who will have to approve the proposed final judgment. That process could take some time in light of the opposition to the settlement. For instance, a proposed final judgment with a divestiture remedy resolving a federal/state challenge to the combination of CVS Health and Aetna has been pending since last October in the federal district court in Washington, D.C. before Judge Richard Leon.

Attorneys: Frederick Sherwood Young for U.S. Department of Justice. Steven C. Sunshine and Julia K. York (Skadden, Arps, Slate, Meagher & Flom LLP) for Sprint Corp.

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

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