It’s possible that T-Mobile’s controversial takeover of Sprint will deliver the better, faster, and cheaper cellphone service that executives have been promising consumers for the past year, California Attorney General Xavier Becerra says. But the evidence suggests it won’t.
The likelihood that the deal instead will drive up prices by leaving just three companies dominating the U.S. telecommunications industry rather than four, prompted California, New York, seven other states, and the District of Columbia to file a federal suit in Manhattan Tuesday that seeks to block the merger on anti-competitive grounds.
The move comes amid an ongoing Justice Department review of the $26.5 billion transaction, which was announced more than a year ago to harsh criticism from consumer advocates as well as some lawmakers. A previous attempt by the two companies to combine was blocked under the Obama administration, and critics say the effects would be just as harmful today.
The deal might cost Sprint and T-Mobile subscribers as much as $4.5 billion a year in price increases, Becerra said. Studies show that prices jumped 16% to 20% in countries where mobile networks shrank from four to three companies.
“When it comes to corporate power, bigger isn’t always better,” added New York Attorney General Letitia James. The transaction would “particularly affect lower-income and minority consumers in New York and in urban areas the country,” she added. “That’s why we are going to court.”
If regulators and the courts allow the companies to combine, the new firm would control more than 50% of the market in some urban areas, including New York, the attorneys general argue in the lawsuit, which seeks an injunction blocking the merger. Additionally, both Sprint and T-Mobile control large portions of the low-income market, partly through prepaid services that don’t require credit checks.
“Choice is not real if competition is not meaningful,” Becerra said in a news conference. “T-Mobile and Sprint not only compete today against Verizon and AT&T for customers, but they compete against each other. That competition disappears if this merger goes through.”
AT&T had a base of 156.7 million subscribers as of mid-2018, while Verizon had 116.3 million. T-Mobile came in third, with 72.6 million subscribers, while Sprint had 59.7 million.
“The states’ action today is a welcome development for American workers and consumers, and a reminder that regulators must take labor market concerns seriously,” Chris Shelton, president of the Communications Workers of America, said in a statement. “T-Mobile and Sprint have a long history of interfering with their workers’ freedom to join a union. Without collective bargaining, T-Mobile and Sprint workers have limited ability to protect themselves from the negative impact of this merger.”
Despite arguments to the contrary, the merger is almost certain to cost industry jobs, Shelton has said. In a February committee hearing with House lawmakers, he said that trusting T-Mobile and Sprint with American jobs requires a leap of faith akin to trusting a vampire in a blood bank.
T-Mobile’s deal spurred skepticism almost from its initial announcement last year. To counter it, Sprint and T-Mobile are heavily emphasizing a combined company’s ability to more rapidly develop and deploy a 5G, or fifth-generation, wireless network, with higher-powered transmission capabilities.
That will change the way Americans live, work, and play, T-Mobile CEO John Legere says, enabling wireless customers to download movies in seconds and employ instantaneous language translation.
“I can’t wait to create the new T-Mobile and truly take it to the entrenched players in wireless, cable, and beyond,” Legere told investors in late April. “Make no mistake, opponents of this transaction are desperate to maintain the status quo, all to the detriment of their customers and for their own benefits.”
Since then, the buyout has won the support of Ajit Pai, chairman of the Federal Communications Commission. Unlike the Justice Department, which considers antitrust issues in merger reviews, the FCC also weighs potential consumer benefits.
Along with promising not to raise prices for three years after the deal is completed, the companies agreed to sell Boost Mobile, Pai said. Boost, a virtual-network operator that owns no transmission equipment of its own, leases capacity from companies that do, such as AT&T, and has a large base of prepaid customers.
The deal “is a unique opportunity to speed up the deployment of 5G throughout the United States and bring much faster mobile broadband to rural Americans,” Pai said on May 20, after the FCC reviewed the deal for nearly a year. “We should seize this opportunity.”
