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California and other states sue to stop Sprint and T-Mobile from merging

California and other states sue to stop Sprint and T-Mobile from merging
A woman using a cellphone walks past T-Mobile and Sprint stores in New York in 2010. (Mark Lennihan / Associated Press)

A group of state attorneys general led by New York and California filed a federal lawsuit Tuesday to block T-Mobile's $26.5-billion bid for Sprint, saying the merger would harm consumers.

The state attorneys general say combining the companies would hurt competition and drive up prices for cellphone service. They said the promised benefits — such as better networks in rural areas and faster service overall — cannot be verified, but eliminating a major wireless company would immediately harm consumers.

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“Although T-Mobile and Sprint may be promising faster, better, and cheaper service with this merger, the evidence weighs against it,” California Atty. Gen. Xavier Becerra said in a statement Tuesday. “This merger would hurt the most vulnerable Californians and result in a compressed market with fewer choices and higher prices.”

Other attorneys general joining Tuesday's lawsuit are from Colorado, Connecticut, the District of Columbia, Maryland, Michigan, Mississippi, Virginia and Wisconsin. All 10 are Democrats. The lawsuit was filed in U.S. District Court in New York.

It's an unusual step ahead of a decision by federal antitrust authorities. The Department of Justice’s decision is pending. The Republican majority of the Federal Communications Commission supports the deal.

“There's no rule or regulation that we have to wait for the DOJ,” New York Atty. Gen. Letitia James said. She added that the attorneys general will “continue to litigate whether the DOJ approves the merger or not.”

Diana Moss, president of the American Antitrust Institute and an advocate for tougher antitrust enforcement, said the states’ lawsuit could signal to companies in other potential merger deals that there would be tougher enforcement from states even if the federal government let deals go through.

James said her office’s renewed focus on mergers and anti-competitiveness goes beyond the tech industry, though she did not elaborate.

T-Mobile and Sprint have argued that they need to bulk up to upgrade to a fast, powerful, next-generation 5G mobile network that competes with Verizon and AT&T. The companies are appealing to President Trump's desire for the U.S. to “win” a global 5G race.

Consumer advocates, labor unions and several Democratic lawmakers worry that the deal could mean job cuts, higher wireless prices and a hit to the rural cellphone market.

Amanda Wait, an antitrust lawyer and former Federal Trade Commission lawyer, said states are acting because they disagree with what they have seen the federal government doing.

“They see the FCC accepting certain remedies and concessions that don’t, in their minds, solve the problem,” she said.

T-Mobile declined to comment. Sprint and the Justice Department did not immediately respond to requests for comment.

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One famous example of when the states and federal government diverged on a big antitrust case was in the fight against Microsoft, although that was not a merger case. Several states dissented from the Justice Department’s settlement roughly 20 years ago; they wanted tougher sanctions to curtail Microsoft’s ability to use its dominance in the Windows operating system to thwart competition in other technologies.

More recently, five states last year criticized the federal government’s approval of the Bayer-Monsanto agribusiness merger.

T-Mobile and Sprint announced their merger deal more than a year ago, saying their combined pocketbooks and holdings of spectrum — the airwaves that carry cellphone signals — could result in a better 5G network than either company could build on its own. Several Wall Street analysts have agreed with that assessment. The United States is in a politically sensitive race with China to be on top as this technology is developed and implemented.

The two companies tried to combine during the Obama administration, but regulators rebuffed them. They resumed talks on combining once Trump took office, hoping for more industry-friendly regulators.

T-Mobile has a reputation for consumer-friendly changes to the cellphone industry; for example, it and Sprint led the return of unlimited-data cellphone plans.

T-Mobile, trying to reassure critics, promised the FCC it would build out a 5G network and invest in rural broadband in a specific time frame or pay penalties. It also promised to sell off Sprint's prepaid Boost Mobile brand and keep price increases on hold for three years.

That was enough for FCC Chairman Ajit Pai to back the deal. The other two Republican FCC commissioners have indicated they would join Pai to seal the agency's formal approval for the deal, which is still pending.

Public-interest advocates said these conditions did not address the main criticisms of the deal — the prospect of higher prices in the long run and less wireless competition— and would be difficult for regulators to enforce.

The Justice Department evaluates deals using stricter criteria than the FCC's “public interest” standard: namely, whether they harm competition and raise prices for consumers. Staff attorneys at the Justice Department have reportedly told the companies they won't approve the deal as proposed, but the ultimate decision lies with Makan Delrahim, the top antitrust official who was a political appointee.

The state attorneys general said in Tuesday's lawsuit that combining Sprint and T-Mobile would make the industry as a whole — including Verizon and AT&T — less likely to offer plans and services that consumers like. And they said the companies have already been working to roll out 5G and don't need to combine to do so.

Japanese tech conglomerate SoftBank owns Sprint. Germany's Deutsche Telekom owns T-Mobile.

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