A federal judge has ruled in favor of Sprint and T-Mobile’s $26 billion merger, dismissing anti-competitive concerns and clearing the way for a deal that would create the nation’s third-largest wireless carrier as the industry hurtles toward the new frontier of ultrafast 5G service.
T-Mobile and Sprint, the Nos. 3 and 4 carriers by size, have long argued that the deal would shield them from the industry’s brutal pricing wars and expedite their ability to deliver 5G to the masses.
Last year, they promised Washington that they would build a 5G wireless network for 97% of the country in three years, including much of rural America, while offering “same or better rate plans at the same or better prices.” The combined company, which will retain the T-Mobile name, is expected to serve more than 100 million subscribers, rivaling the larger footprints of AT&T and Verizon.
U.S. District Judge Victor Marrero said the merger was unlikely to “substantially lessen competition,” rejecting arguments from California, New York and 11 other states that sued to block it.
“T-Mobile has redefined itself over the past decade as a maverick that has spurred the two largest players in its industry to make numerous pro-consumer changes. The proposed merger would allow the merged company to continue T-Mobile’s undeniably successful business strategy for the foreseeable future,” he wrote in his decision.
“While Sprint has made valiant attempts to stay competitive in a rapidly developing and capital-intensive market, the overwhelming view both within Sprint and in the wider industry is that Sprint is falling farther and farther short of the targets it must hit to remain relevant as a significant competitor,” Marrero said.
Sprint shares spiked more than 72% on the news, trading at $8.25 by midday. T-Mobile surged 11.1%, to $93.90.
The deal could be complete as soon as April 1, the companies said in a news release, though it still requires approval from the California Public Utilities Commission. And though the Federal Communications Commission and the Justice Department approved the deal last year, it’s possible the legal battle isn’t over yet. New York Attorney General Letitia James, who spearheaded the lawsuit, said the states “wholeheartedly” disagreed with the ruling and are considering an appeal.
“From the start, this merger has been about massive corporate profits over all else, and despite the companies’ false claims, this deal will endanger wireless subscribers where it hurts most: their wallets,” James said in a statement. “There is no doubt that reducing the mobile market from four to three will be bad for consumers, bad for workers, and bad for innovation, which is why the states stepped up and led this lawsuit.”
Recent months have seen lawmakers on both sides of the aisle raise concerns about the dangers of corporate consolidation. House lawmakers have embarked on a wide-ranging probe exploring whether Silicon Valley giants such as Apple, Google and Facebook have taken unfair action to quash rivals.
Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass., have made breaking up big tech a prominent feature of their presidential campaigns. But even when federal regulators are involved, they rarely take action against mergers: The Federal Trade Commission challenged 22 mergers out of 2,111 in 2018, according to an agency report. Five challenges resulted in litigation.
Advocates of the deal say it would boost competition by rescuing the struggling Sprint, which has been unprofitable for the better part of the past decade and claims 13% of the market. Aija Leiponen, a professor of applied economics at Cornell University and an expert in the telecom industry, said the deal will keep Sprint out of the hands of AT&T and Verizon, which command 40% and 30% of the market, respectively.
“If Sprint goes bankrupt, its assets will likely be sold to the other three companies, potentially enhancing the already strong dominance of the two market leaders,” Leiponen said. “The creation of a third equal competitor, the combined Sprint-T-Mobile, would have about 30% of the market, too. This might actually provide a more viable alternative, and a counterweight, to Verizon and AT&T nationwide.”
Although the merger was formally announced in April 2018, T-Mobile and Sprint, run by Japanese conglomerate Softbank, had been flirting with a combination for years but were thwarted by political head winds. To win the government’s blessing, both companies agreed to sell off key assets – including hundreds of retail stores, thousands of cell sites and spectrum licenses – to Dish Network in an effort to turn Dish into a fourth national wireless carrier.
Sprint and T-Mobile were also forced to ditch their prepaid phone businesses, Boost Mobile and Virgin Mobile.
“If this merger proceeds, we hope the plan for DISH Network to enter the wireless marketplace as a new competitor works, and that wireless users will eventually benefit again from a market with four strong competitors,” John Bergmayer, legal director at think tank Public Knowledge said in a statement. “There will be a great deal of uncertainty for consumers in the meantime, as a result of this decision. New entry into the wireless market is not easy, especially when it requires the cooperation of your competitors, as under the DOJ’s proposal.”
Executives said the new T-Mobile will increase competition in broadband markets by bringing high-quality coverage to underserved areas and be a major job creator in a tight labor market. The new company will have more than 3,500 additional full-time workers than the individual companies would, T-Mobile said in a news release, and 11,000 more by 2024.
About 600 new retail locations and five new customer experience centers will also create 12,000 jobs, the company said, many in small towns.
“This will benefit Kansas consumers by increasing competition in our state, expanding quality coverage in many rural areas of Kansas, expediting the deployment of 5G technology for Kansans, and protecting and expanding Kansas jobs,” Kansas Attorney General Derek Schmidt, who supported the merger, said in a statement. “We intend to hold the merged company to its promises of investment in its Kansas network and of maintaining substantial employment at what will become the combined company’s ‘second headquarters’ in Overland Park.”
Sprint executive chairman Marcelo Claure said in a news release that the company was “ready to make the vision of a New T-Mobile a reality.” It “brings us a big step closer to creating a combined company that will provide nationwide 5G, lower costs, and a high-performing network that will invigorate competition to the benefit of all mobile wireless and in-home broadband consumers.”
Richard Parker, legal counsel for T-Mobile’s parent company, Deutsche Telekom, said in a statement emailed to The Washington Post that the company was “delighted” with the decision. “As we argued in court, this merger ensures competition by allowing the combined companies to more effectively compete with the market leaders. It is our hope that with the Court’s endorsement of the merger, along with the federal agencies’ approval, this matter can be closed so that the market can do what it does best: fuel competition and innovation.”
Mike Sievert, T-Mobile’s current president, is poised to succeed John Legere as chief executive to helm the newly combined company on May 1. Legere, whose charisma and acumen helped move the merger forward, will remain a member of the board.