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U.S. OK of T-Mobile-Sprint Deal Would Make It Harder for States

July 25, 2019, 10:25 AM

The Justice Department’s potential approval of T-Mobile U.S. Inc.'s acquisition of Sprint Corp. would complicate a multi-state challenge to the deal.

Thirteen states and the District of Columbia, which collectively sued to block the deal in June, will have to come up with new legal arguments, overcome judicial deference to federal regulators, and convince a judge that a sale of assets to Dish Network Corp. wouldn’t preserve enough wireless competition.

“A lot of the central factual things that the states are complaining about in their initial complaint will be rendered moot by the settlement,” Randy Gordon, partner at Barnes and Thornburg LLP in Dallas, said.

Besides the Justice Department, the Federal Communications Commission is also is likely to approve the deal after Chairman Ajit Pai in May said he would back it.

“The states are going to have to explain why those two expert agencies are wrong,” Bloomberg Intelligence Analyst Jennifer Rie said. “It increases the difficulty of their task.”

‘Highly Speculative Outcome’

Justice Department antitrust chief Makan Delrahim has pushed to set up Dish as a new wireless competitor to offset potential anti-competitive effects of a merger between the third- and fourth-largest U.S. mobile carriers.

The state attorneys general likely would argue that Dish would struggle to compete with T-Mobile, AT&T Inc., and Verizon Communications Inc., Andrew Jay Schwartzman, a media lawyer at Georgetown University Law Center, said.

“I think the states will want to argue that the deal depends on a highly speculative outcome,” Schwartzman said. Dish would rely on T-Mobile’s network to offer wireless service until it can build its own network, Schwartzman said.

The states will also have to overcome federal judges’ reluctance to overturn the agencies’ merger review decisions, said Daniel Lyons, a professor at Boston College Law School who focuses on telecommunications law.

“Traditional administrative law principles suggest that because DOJ is the expert agency its conclusions would get some deference from the court,” Lyons said.

Can’t Combine

The states will also have to ward off any attempts by Sprint and T-Mobile to close their deal before the lawsuit goes to trial.

In June, Sprint and T-Mobile said in a pending trial plan they wouldn’t consummate the deal until the states’ lawsuit is resolved. However, the plan included an Oct. 7 trial date, which the states are pushing to delay.

Without an agreement, the states may be forced to ask the court to temporarily block the deal until it rules in the case.

“If they don’t get a preliminary injunction, the game is pretty much over,” Robert Litan, a former Justice Department antitrust official, said.

It likely won’t be hard for the states to win an injunction if they can prove that irreparable damage will be done if the two companies start formalizing the merger, Litan, who is now a partner at Korein Tillery LLC, said.

States will then need to begin a lengthy discovery process, including combing through economic analysis, expert testimony, and other findings that help them show the DOJ’s settlement isn’t workable. The states have already secured several economists, including Carl Shapiro, who served as the DOJ’s expert witness in the AT&T-Time Warner trial.

Discovery will likely take at least six months, Litan said.

Justice’s Role

The Justice Department could push the court to dismiss the states’ case, Harry First, the former chief of the antitrust bureau of the New York Attorney General’s Office, said.

“The states are still in a good position of bucking the Justice Department,” First, a professor at New York University School of Law. said.

States could easily point to antitrust regulators past failed attempts to create viable new competitors as a reason why the Dish settlement won’t work. “I would describe this potential deal with Dish as creating a fourth runt competitor, it’s a window dressing divestiture,” Litan added.

Under Delrahim, Justice’s Antitrust Division has filed several such briefs urging judges to drop antitrust cases or go easy on defendants, including one involving the Federal Trade Commission.

The states “seem to have jumped the gun on Justice,” First said, “so they should be prepared.”

To contact the reporters on this story: Victoria Graham in Washington at vgraham@bloomberglaw.com; Jon Reid in Washington at jreid@bloomberglaw.com

To contact the editors responsible for this story: Keith Perine at kperine@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com