US states prepare lawsuit to block T-Mobile’s takeover of Sprint

Fears are that competition in prices for consumers would be affected

T-Mobile USA shares fell more than 2 per cent.

T-Mobile USA shares fell more than 2 per cent.

 

T-Mobile’s $26 billion (€23 billion ) takeover of mobile telecommunications rival Sprint is facing a new threat from a group of US states who are preparing a lawsuit to block the deal even if it wins regulatory approval from Washington.

The move by states including New York and Maryland comes as the US Department of Justice continues to review the transaction, which would reduce the number of nationwide wireless operators to three by swallowing up America’s smallest carrier, Sprint.

Ajit Pai, the chairman of the Federal Communications Commission, has publicly backed the deal, while Makan Delrahim, the antitrust chief at the justice department, is yet to reveal his decision.

Sprint shares were down as much as 6.9 per cent on Tuesday after the plans were first reported by Reuters; T-Mobile USA shares fell more than 2 per cent. A person close to the legal planning confirmed the pending action.

The New York state attorney-general’s office has scheduled a press conference at 2pm to make “a major announcement impacting New Yorkers across the state, as well as individuals throughout the nation”.

T-Mobile and Sprint did not immediately return requests for comment.

Transaction

While state authorities in the US often take their lead on merger reviews from the justice department, which is the primary arbiter of telecoms mergers, they retain independent authority to persuade the courts to block a deal even if the federal government has cleared the transaction.

John Legere, the T-Mobile chief executive, has argued the takeover would give the combined group enough resources to properly compete with the two largest players in the market, AT&T and Verizon.

Mr Legere has pitched the tie-up as an issue of national security, arguing it will help to speed up the rollout of 5G technology, which is at the heart of US concerns about the Chinese equipment supplier Huawei.

Opponents of the deal have said T-Mobile and Sprint are the two scrappiest players in the wireless market who compete aggressively on price and quality, particularly in the retail mobile space.

Combining the two, according to consumer advocates, would eliminate a key source of competitive pressure in the industry. EU competition authorities have regularly blocked wireless mergers that reduce the number of competitors from four to three, arguing it allows the remaining players to raise prices.

The companies secured the backing of the FCC with a promise not to increase rates for three years after the merger and a pledge by Sprint to divest Boost Mobile, a prepaid wireless business. Staff at the justice department reviewing the deal have been more sceptical about the transaction, which has echoes of an attempt by AT&T to buy T-Mobile in 2011 that the department sued to block.

Move

The move by state authorities will put pressure on Mr Delrahim, who has shown a willingness to block large-scale deals such as AT&T’s takeover of Time Warner and the health insurance merger between Aetna and Humana. President Donald Trump has frequently voiced scepticism to industry consolidation in several sectors, most recently expressing concern about Raytheon’s deal to merger with aerospace rival United Technologies

On Tuesday Chris Shelton, president of the Communications Workers of America, said the states had sent “a signal to the US Department of Justice to take strong action to enforce our nation’s antitrust laws”. – Copyright The Financial Times Limited 2019