States Take Charge In Seeking to Block Merger of T-Mobile and Sprint

The unusual effort by more than a dozen state attorneys general to stop T-Mobile’s acquisition of its rival Sprint is perhaps most noteworthy for the antitrust enforcer that is not in the courtroom—the U.S. Department of Justice.

As he was scheduling trial for October 7, 2019, United States District Court Judge Victor Marrero said what was on everyone’s mind:  “The elephant not in the room is the Justice Department.”  Thirteen states, including New York and California, along with the District of Columbia have filed suit in the Southern District of New York to block the proposed merger of Sprint and T-Mobile, the third and fourth largest wireless carriers in the United States.

While states often join federal lawsuits to block mergers or bring cases to fill in the gaps when the federal government declines to act, this case represents an uncommon situation.  Here, the states are acting preemptively without the support of the Department of Justice and in contradiction to the Federal Communications Commission (“FCC”).

Relationship Between States and Federal Enforcers

 By and large, state and federal antitrust enforcers enjoy a collegial relationship.  In the case of mergers, state and federal enforcers generally share information and collectively review the proposed transactions.  For example, the Federal Trade Commission has worked with both the State of Idaho and the State of North Dakota in blocking two separate healthcare provider mergers.  In larger mergers impacting commerce across numerous states, it is not uncommon for numerous states to join a federal lawsuit.  In blocking the merger of Anthem and Cigna, two dominant health insurers that operated across the country, 11 different states joined the Department of Justice’s lawsuit.

In addition, states will often act independently to bring antitrust lawsuits.  Recently, Washington filed and settled a lawsuit against CHI Franciscan alleging that the hospital system’s agreement with physician groups raised prices and harmed competition.  The New York Attorney General also filed suit, and was victorious, against an anticompetitive practice by a pharmaceutical manufacturer seeking to extend its monopoly over certain Alzheimer’s medication.  There are a variety of reasons why the states file lawsuit without the federal government’s intervention, including different federal priorities about how to spend limited resources.  Nonetheless, it remains highly irregular for a state to seek to block a national merger without an intervention from the federal government.

Federal Review of the T-Mobile/Sprint Merger

In April 2018, T-Mobile and Sprint announced their planned merger to create a larger telecommunications company that could “build the world’s best 5G network.”  Under federal law, both the Department of Justice and the FCC must approve this transaction.  In May 2019, the FCC’s chairman, Ajit Pai, and his fellow Republican Commissioners, announced their support of the merger subject to some conditions by the parties.  A month later, news broke that Department of Justice was close to supporting the merger, so long as the parties agreed that they would sell the prepaid mobile service, Boost Mobile, to a competitor.   All indications continue to suggest that the Department of Justice will approve the merger if the parties agree to the settlement terms.

State Lawsuit

In their lawsuit, the states allege that the reduction of national wireless carriers from four to three—Verizon, AT&T, and the combined T-Mobile/Sprint—will harm consumers, including many low-income subscribers, by increasing prices that consumers pay for mobile wireless telecommunication services.  Specifically, the states allege that the combined entity could charge $4.5 billion more in annual fees on all retail mobile wireless subscribers.  The amended complaint further alleges that T-Mobile and Sprint have long-desired to merge, not as a means of improving services for consumers, but to improve return on shareholder investments.  The states note that T-Mobile and Sprint are close competitors that have consistently sought to grab each other’s market share in various regional markets.  As a result, a loss of one of these competitors will further harm consumers.

The states do acknowledge and address the potential divestiture of Boost Mobile but argue that such a divestiture will not offset the overall increase in concentration.  Moreover, the states contend that a divested Boost Mobile will be unable to compete on the basis of quality or price to sufficiently restrain a price increased from the combined T-Mobile/Sprint.

Conclusion

The T-Mobile/Sprint saga is a reminder that the states retain their independence in assessing competition concerns, particularly for large, national mergers.  Here, the states have decided to block a merger that is likely to be approved by the federal government.  While state-federal cooperation in antitrust enforcement is likely to continue, this case demonstrates that the states can and will make unilateral decisions on antitrust matters.

Edited by Gary J. Malone

Tagged in: Antitrust Enforcement, Antitrust Litigation,