T-Mobile prepares for key court battle over Sprint deal

The states warned that if the carriers are able to merge, subscribers will lose the fierce competition between them that has meant lower prices and better mobile-phone plans. REUTERS

The future of the US wireless industry hinges on a court battle kicking off Monday in federal court in Manhattan, a case that could end with T-Mobile US buying Sprint Corporation, and Dish Network Corporation getting the go-ahead to enter the market.

US Judge Victor Marrero will weigh arguments from a group of states that say he should block the $26.5 billion Sprint deal because it will raise prices on consumers by eliminating competition between the two carriers. T-Mobile says the opposite: By combining with Sprint, it can reduce costs and lower prices.

A win for the companies would create a new wireless giant that would overtake AT&T to become the Number 2 carrier in terms of monthly regular subscribers behind Verizon Communications. A loss would leave Sprint a distant Number 4 in the market, weighed down by a debt load that threatens to cripple the company.

The states, led by New York Attorney General Letitia James and California’s Xavier Becerra, have the edge going into the trial, said Blair Levin, an analyst at New Street Research. He said they have the better argument: that the tie-up violates antitrust laws and that the proposed settlement -- setting up Dish to become a new wireless carrier -- doesn’t resolve the anticompetitive problems.

That makes Dish Chairman Charlie Ergen the most important witness of the trial, Mr Levin said. He’ll have to convince the judge that Dish can quickly become a robust competitor in the market even though the company has no experience in selling wireless-phone service.

“If they fail on that, the fix fails,” Levin said.

That’s the view of the states. They argue there is no chance Dish can really replace Sprint as a competitor in the applicable timeframe of two to three years.

Dish has agreed to buy Sprint’s Boost prepaid business, plus a number of cell towers and airwaves, to get a start on building a new so-called facilities-based US wireless carrier. The agreement includes a commitment to build an advanced 5G network that covers two-thirds of Americans within four years.

“The prospect that Dish may someday, many years in the future, establish itself as a fourth competitor that is vaguely comparable to the fourth competitor that already exists today is a wholly insufficient defense for an otherwise anticompetitive merger,” the states said in court papers.

The states warned that if the carriers are able to merge, subscribers will lose the fierce competition between them that has meant lower prices and better mobile-phone plans. By combining, they will gain the power to charge higher prices to the tune of billions of dollars, they said.

T-Mobile, majority-owned by Deutsche Telekom, has attempted to head off that argument. It has pledged to freeze prices for three years, offer free wireless broadband access to 10 million underserved students, and offer a new $15-a-month data plan capped at 2 gigabytes if the Sprint deal gets final approval.

But even without those commitments, T-Mobile argues that buying Sprint will give it a massive increase in network capacity, which means a cost advantage in terms of delivering data, and a way to compete with lower prices.

To help make the case to Marrero, who was nominated to the bench in 1999 by President Bill Clinton, T-Mobile chief executive Officer John Legere will testify at the trial.

A central piece of the company’s argument is that the combination of T-Mobile and Sprint’s networks will lead to faster deployment of 5G, the next generation of wireless technology. The company will also point to approvals of the deal by the Justice Department’s antitrust division and the Federal Communications Commission.

The approvals by the FCC and Justice Department make the trial unique. It is almost unheard of for state attorneys general to challenge a merger that federal antitrust officials have approved.

“If state attorneys general can kill a merger, that means there’s a new cop on the beat, which would have broad implications for how companies get deals approved,” said Walter Piecyk, an analyst with LightShed Partners.