An antitrust suit aimed at blocking T-Mobile’s acquisition of Sprint opened Monday in a crowded courtroom in New York with testimony from Sprint executives that touched on the consumer benefits of the company’s competition with T-Mobile and other carriers.
A group of 14 state attorneys general, led by New York and California, aim to convince a federal judge that the $26.5 billion deal should be blocked. T-Mobile has already notched approvals from key federal regulators, setting up an unusual situation where states officials are seeking to overturn their federal counterparts.
The trial, in U.S. District Court in New York, is expected to last several weeks.
If T-Mobile prevails, the number of major U.S. wireless companies would shrink to three from four. A combined T-Mobile-Sprint would become a fiercer competitor to larger Verizon and AT&T . But the states argue that having one fewer mobile carrier would reduce competition and cost Americans billions of dollars in higher phone bills.
T-Mobile and Sprint provide cheaper alternatives to Verizon and AT&T, and T-Mobile has branded itself the “Un-carrier,” one that has made consumer-friendly changes such as bringing back unlimited-data plans and shattering two-year service contracts. There are concerns that less competition would put an end to these types of changes, although T-Mobile says that won’t happen.
The states’ lawyers on Monday questioned Roger Sole, Sprint’s chief marketing officer, and Angela Rittgers, the senior vice president for sales and marketing for Sprint’s prepaid brands, Boost and Virgin. Their aim: Demonstrate that Sprint and T-Mobile competed with each other for customers by cutting prices and bringing unlimited plans back to the wireless market, benefiting consumers.
In one example, they showed an email from former Sprint CEO Marcelo Claure to Sole, saying Sprint had to match a buy-one-get-one-free offer from T-Mobile for the iPhone 8. “We have no choice,” Claure said.
T-Mobile, which promised not to raise prices for three years, defends its deal as good for competition. It repeats previous arguments that the combined T-Mobile and Sprint will be able to build a better 5G network — a priority for the Trump administration — than either company could manage on its own.
The states, however, showed that at least one executive seemed to think the merger could drive up prices for consumers. During the questioning of Sole on Monday, attorneys presented messages he sent to Claure in October 2017, during merger negotiations, that posited that customer prices could rise an average $5 per user because of the deal.
Sole also wrote that prices could rise at AT&T and Verizon in a three-company wireless market. On the witness stand, Sole said he was just presenting a hypothetical and that he did no formal analysis to arrive at the $5 number.
The deal got the nod from both the Justice Department and the Federal Communications Commission, thanks to T-Mobile’s unusual commitment to create a brand-new mobile carrier in a deal with satellite-TV company Dish.
T-Mobile agreed to sell millions of customers to Dish and to rent its network to the fledgling rival while it built its own. Absent that arrangement, the Justice Department said, the deal would have been bad for consumers. Dish would start providing cellphone service after buying Sprint’s current prepaid-service business. Dish is also required to build a faster, next-generation network, known as 5G, over the next several years.
The states says the Dish fix isn’t good enough. In a court filing, lawyers argued that T-Mobile and Sprint shouldn’t be allowed to combine “based on the hope that Dish will one day grow into a viable wireless company equal to a competitor that already exists today.”
Although it’s unusual for states to try to block a deal already approved by the federal government, experts note that states in recent years have been playing a bigger role in antitrust enforcement. They have gone after generic drug makers and hit tech companies with their own investigations.
“The states have going for them a pretty clear, straightforward application of the antitrust laws,” said Jeffrey Blattner, a former Justice Department official who now teaches at the University of Colorado. “The states have the wind at their back in terms of the law. How the facts play out, we’ll find out in the courtroom.”
Dish, a satellite TV company with a shrinking customer base, has spent about $21 billion over a decade buying wireless spectrum, the airwaves for transmitting data and calls, although the company hasn’t done much with it. Analysts have long questioned whether Dish intends to build its own network or simply profit by selling the spectrum to others. Post-deal, Dish faces up to $2.2 billion in fines if it fails to create a 5G network that serves 70% of the country by 2023.
Some analysts have said that Dish has potential as a viable competitor, but others say it will have a lot of challenges.
Dish must “start from scratch,” said Nicholas Economides, a New York University business school professor who joined six economists in criticizing the Dish settlement as inadequate to make up for the loss of Sprint.
T-Mobile and Sprint say that a freestanding Sprint is weak and getting weaker. Sprint’s network quality is worse than its rivals’, and it has been losing customers, limiting its ability to invest in network improvements. T-Mobile CEO John Legere has insisted that Dish, even starting from scratch, will be more formidable than Sprint.
Legere, the face of T-Mobile and the rare telecom executive whose name may be known to the public because of his tendency to post videos and GIFs on social media, is stepping down as CEO next spring.
He and his replacement, T-Mobile President and Chief Operating Officer Michael Sievert, have said they are confident that T-Mobile will prevail, but add that the company will be fine even if it isn’t allowed to buy Sprint.
“All roads lead to success,” Legere said during a call with analysts in mid-November.
T-Mobile has consistently shown that it would be OK without Sprint, said Craig Moffett, a well-known telecom analyst with MoffettNathanson Research. But the company would still need to figure out a new strategy for creating a strong 5G network without Sprint’s spectrum.
Both Legere and Sievert are expected to testify later this week. Questioning of Deutsche Telekom CEO Timotheus Höttges began Monday. Deutsche Telekom, a Germany company, is T-Mobile’s majority shareholder.