Telecommunications Industry Continues Consolidation: The Antitrust Implications of the Recent Sprint and T-Mobile Merger Ruling

Wicy Wang, CLS ’21

The story of the proposed $26 billion merger between T-Mobile and Sprint began last year, when the Federal Communications Commission and the U.S. Justice Department approved the deal contingent, in part, on the divestiture of certain assets.[1] However, there remained concerns about the merger, which would combine the third- and fourth-largest wireless carriers in the U.S. into an expansive corporation servicing approximately 100 million customers.[2] In June 2019, ten attorney generals, including the New York State Attorney General, filed suit in the Southern District of New York to enjoin the merger from taking place under Section 7 of the Clayton Act; they argued that the increased market concentration would result in “diminished competition, higher prices, and reduced quality and innovation.”[3]

On February 11, the S.D.N.Y. dismissed the case, allowing the merger between Sprint and T-Mobile to move forward.[4] The court did not agree that “the New T-Mobile would pursue anticompetitive behavior that . . . will yield higher prices or lower quality for wireless telecommunications services.”[5] One important factor the court noted was that T-Mobile and Sprint have agreed to keep prices steady for three years following the merger; as part of its antitrust analysis, the court was also skeptical that, absent the merger, Sprint’s financial situation would have allowed it to remain competitive in the telecommunications industry.[6]

From an antitrust perspective, the court primarily looked at two ways in which such a merger would be anticompetitive.[7] Firstly, the court dismissed the possibility that the merger would enable “coordinating effects,” where rival firms work together to set high prices that harm consumers. The court gave particular credence to the argument that in the telecommunications industry, firms compete on other dimensions than price such as capacity advantages.[8] Secondly, the court also discounted “unilateral effects” resulting from a general lack of competition, citing AT&T and Verizon as other active competitors in the telecommunications space.[9]

The merger still has its fair share of skeptics. FCC Jessica Rosenworcel argued last year that the promise by T-Mobile not to raise prices is rendered meaningless by the existence of loopholes and surcharges, and that such a promise might not be enforced by the FCC anyway.[10] Furthermore, the telecommunications industry is notorious for its lack of competition at the local level, because of how closely service is tied to geographic coverage; in the New York City metropolitan area, for instance, “the combined company’s share of subscribers would exceed 50%.”[11] And unsurprisingly, the merger is taking place against a backdrop of general industry consolidation;[12] in 2018, AT&T completed its $85.4 billion merger with Time Warner.

What might explain the court’s decision to dismiss this case is a history of generally conservative judicial approaches to antitrust cases, which are traditionally left to federal agency review. In its decision, the court also expressed a fundamental ambivalence towards deciding antitrust cases, noting that the presentation of expert witnesses on both sides was not only unhelpful but counterproductive, and that “conflicting engineering, economic, and scholarly business models . . . essentially cancel each other out as helpful evidence.”[13] Later on in the opinion, the court argues that without discounting economic models, “more traditional judicial methods” are a better approach.[14] By relying on “traditional judicial methods,” however, the court does turn away from data-driven analyses by experts, relying instead on statements from executives in making its decision.[15]

For now, the New York Attorney General has declined to appeal the case.[16] The merger is moving forward, pending approval from the California Public Utility Commission,[17] although it is unclear at the moment how the state public utility commission’s decision would affect the merger.[18] Regardless of whether the merger eventually takes place, this particular case provides an interesting case of state attorney generals asserting their interest under federal antitrust law.

 

[1] Makena Kelly, T-Mobile and Sprint Merger Approved By Justice Department, The Verge (July 26, 2019) https://www.theverge.com/2019/7/26/6646158/t-mobile-sprint-merger-justice-department-approves-26-billion-fcc.

[2] Edmund Lee, T-Mobile and Sprint Are Cleared to Merge as the Big Get Bigger, The New York Times (Feb. 11, 2020) https://www.nytimes.com/2020/02/11/business/media/t-mobile-sprint-merger.html.

[3] Redacted Third Amended Complaint, New York v. Deutsche Telekom AG, No. 1:19-cv-5434 (S.D.N.Y. Sept. 18, 2019).

[4] New York v. Deutsche Telekom AG, 2020 WL 635499 (S.D.N.Y. 2020).

[5] Id. at 4.

[6] Id.

[7] Id. at 39.

[8] Id. at 41.

[9] Id. at 43.

[10] Jessica Rosenworcel, The T-Mobile and Sprint Merger Will Only Hurt Consumers, The Atlantic (Oct. 16, 2019) https://www.theatlantic.com/ideas/archive/2019/10/t-mobile-and-sprints-merger-will-hurt-consumers/599245.

[11] Redacted Third Amended Complaint, New York v. Deutsche Telekom AG, No. 1:19-cv-5434 (S.D.N.Y. Sept. 18, 2019).

[12] Edmund Lee, T-Mobile and Sprint Are Cleared to Merge as the Big Get Bigger, The New York Times, (Feb. 11, 2020) https://www.nytimes.com/2020/02/11/business/media/t-mobile-sprint-merger.html.

[13] New York v. Deutsche Telekom AG, 2020 WL 635499 at 2 (S.D.N.Y. 2020).

[14] Id. at 44.

[15] Id.

[16] Jennifer Ablan and Ortenca Aliaj, New York Decides Against T-Mobile-Sprint Merger Appeal, Financial Times (Feb. 16, 2020) https://www.ft.com/content/66fba848-50ed-11ea-90ad-25e377c0ee1f.

[17] Jon Reid and Victoria Graham, Sprint, T-Mobile Still Need OK From California Utility Regulator, Bloomberg Law (Feb. 11, 2020) https://news.bloomberglaw.com/tech-and-telecom-law/sprint-t-mobile-still-need-ok-from-california-utility-regulator.

[18] Sarah Krouse, California Regulators a Potential Obstacle to T-Mobile, Sprint Merger (Jan. 26, 2020), https://www.wsj.com/articles/california-regulators-a-potential-obstacle-to-t-mobile-sprint-merger-11580063967.