Sprint and T-Mobile want to merge to form a third national wireless behemoth about the size of Verizon and AT&T. More than a dozen state attorneys general claim that the merger would make wireless service and prices worse for Americans, and they are determined to stop them.
The month-long legal battle came down to Wednesday, when the wireless companies and the attorneys general gave their closing arguments to Judge Victor Marrero in a US District Court in New York.
The states say that Sprint (S) and T-Mobile’s proposed $26 billion merger -—which would shrink the wireless market from four major players to three — could raise prices and reduce benefits for consumers. Dish Network (DISH) has been proposed as a new market entrant to remedy the merger’s effects, but the states say it wouldn’t provide meaningful competition.
The companies, meanwhile, claim the merger will actually boost competition and help consumers by propping up Dish as a new player, saving Sprint from its recent performance decline and giving the combined company more resources to invest in 5G and other innovations.
What the states say
Leading the group of states, New York Attorney General Letitia James said outside the courthouse Wednesday the merger would be “bad for the economy, bad for consumers, bad overall for the industry” and would “stifle innovation.”
“It would reduce the quality of service for millions of Americans across the country,” she added. “That’s why I’m confident we will win.”
In his closing arguments, Glenn Pomerantz, the lead counsel for the states, called the merger “presumptively anticompetitive,” and said the remedies proposed to address its effects are insufficient.
The states say that post-merger, the three wireless giants’ will each serve around 30% of the market. They argue that three similarly sized companies are more likely to raise prices for consumers — or at least coordinate not to lower them — than if two smaller players competed on price. And they claim that the merger will reduce the companies’ incentives to initiate the kind of consumer-friendly programs that Sprint and T-Mobile have launched in recent years, such as contract-free service and phone rentals.
Pomerantz rejected the companies’ argument that Sprint will cease to be a meaningful competitor if the merger fails. He called this claim “the Hail Mary Pass” of defenses in these kinds of cases.
“Sprint simply needs to pull up its sleeves and compete,” Pomerantz said.
Federal regulators, including the US Department of Justice and the FCC, have already approved the merger. They were mollified by concessions the companies made, including some spinoffs.
But James said the states use a different standard in reviewing mergers, and she strongly disputed one of the companies’ chief arguments for why their merger should be allowed to proceed.
T-Mobile and Sprint plan to spin off Boost Wireless, Sprint’s low-cost wireless carrier, and other assets. It will give the business and its customers to wireless wannabe Dish. That’s hardly enough to satisfy the attorneys general, James said.
Dish is not a “suitable replacement” for Sprint, she said, because of “the company’s inability to catch up to the three remaining giants.” Pomerantz pointed out in his closing argument that even if Dish does enter the wireless market, it will take years to build its own network and establish a customer base anywhere near where Sprint’s is now.
What the companies say
David Gelfand, who represents Sprint and T-Mobile, spoke in lofty terms about the merger’s potential.
The companies want to combine “to create a new, world class network with lower costs and better service for consumers,” he said, adding that “the world with the merger holds tremendous promise to revolutionize the industry.”
Gelfand also said that both Sprint and T-Mobile currently face market headwinds that could make it difficult for them to compete in the future.
Sprint’s performance has been declining for years and its lower-quality network has alienated consumers. The companies have said that Sprint doesn’t have the right kind of spectrum — a resource needed for building wireless architecture -— to successfully build out a 5G network, and its high debt load could keep it from buying additional resources.
Gelfand said T-Mobile’s network also needs investment. Without new spectrum and added network capacity, T-Mobile will struggle to serve new customers and meet consumers’ growing demands for fast data speeds; the company could be forced to hike prices or reduce the quality of its service, he said.
The companies say that by combining their physical networks, they can provide better service, roll out 5G more quickly and keep prices for consumers low. Gelfand said the combined network will have more than twice the capacity by 2024 than if the companies remained separate. And he added that Dish and cable companies entering the market will provide an incentive for all market players to offer attractive consumer benefits.
“T-Mobile is becoming Rocky and stepping into the ring with its larger competitors and developing a new punch,” Gelfand said of the merger.
Judge Marrero opened Wednesday’s hearing reminding attendees that, “there is life beyond the merger of T-Mobile and Sprint.” He declined to say when he will return with a final ruling on whether to approve the merger, but said he would “endeavor to decide as quickly as possible.”
James declined to say Wednesday whether the states will appeal if Marrero finds in favor of the companies.