T-Mobile-Sprint merger faces closer than usual scrutiny from state attorneys general

T-Mobile’s plan to buy Sprint has spurred a serious investigation from state attorneys general who have been prepared from the start to litigate if needed, MLex has learned, posing a potential threat to the deal's closure.

The states began their investigation into the deal with the understanding that their view might diverge from that of the US Department of Justice, and that they needed to prepare to challenge the deal if their concerns weren't resolved. That drive came in part because the states were at odds with the US Department of Justice in how they viewed the merger, and because of the AT&T-Time Warner case, it is understood.

Whereas the federal government saw the potential for massive efficiencies and the creation of new markets and products if T-Mobile-Sprint's 5G network claims could be proven, the states were more skeptical. State concerns have included the immediate potential harm to rural and low-income consumers, it is understood.

Tension between state and federal regulators has lingered since then-newly confirmed Assistant Attorney General Makan Delrahim did an about-face on the states and decided to challenge the AT&T-Time Warner merger despite earlier indications it would be settled similarly to the Comcast-NBCU deal. No states signed onto the complaint.

As a result, for the T-Mobile case, the states contributed funding early on and retained economist Carl Shapiro, it is understood. While states often hire their own economist in major merger investigations, choosing one of Shapiro’s prominence is unusual. Shapiro served as the DOJ’s expert economist in the AT&T case.

The states could challenge the T-Mobile-Sprint merger even if federal enforcers were to clear it.

Solving states’ fears

The states’ concerns could be resolved by the DOJ or the US Federal Communications Commission, which is reviewing the deal under a public interest standard. The companies could also make state-specific promises to alleviate worries.

For example, the FCC could negotiate a behavioral commitment that seeks to protect rural America, while the DOJ could negotiate a structural remedy that addresses competition concerns by requiring the companies to divest prepaid business.

States reviewing the deal include: Alabama, California, Colorado, Connecticut, Florida, Hawaii, Iowa, Maryland, Massachusetts, Mississippi, Nevada, New York, Tennessee, Washington, Wisconsin and Virginia, as well as the District of Columbia.

“We are aware of and are monitoring the merger,” Mississippi's Democratic attorney general, Jim Hood, told MLex in a statement. “Mobile phones and wireless services have become a significant part of consumers’ lives, and we want to be mindful of any possible price increase and how the merger may impact Mississippians and our businesses.”

Other state attorneys general declined to comment or didn't respond to requests for comment.

The DOJ and state attorneys general speak regularly. And while the DOJ’s decision is rarely influenced by state actions, after going it alone on AT&T and losing, the DOJ may be more inclined to take the states' views into account.

The states, meanwhile, want their concerns to be resolved. If that means filing their own legal challenge without the support of the DOJ, they would have to convince a judge that the merger will harm consumers despite a lack of concern from federal regulators.

Not unprecedented

If the states litigate on their own, it won’t be the first time they have played the maverick, though it would be unusual.

Typically, when states have challenged mergers, it has been to solve state-specific concerns. In many cases,  states have sought divestitures — for example in retail deals where there is concentration in certain geographic areas.

The Oracle-PeopleSoft merger was different in that it posed harm on a national level. But states were also uniquely affected as major purchasers of the software at issue.

A group of states investigated that deal and considered filing their own suit, even drafting a complaint, it is understood. But ultimately when the DOJ filed suit in 2004, the states decided instead to join the complaint and were integrated into the trial team.

In the Plains All American Pipeline-Valero deal in 2017, the US Federal Trade Commission cleared the deal without conditions, but the California attorney general’s office challenged the merger. The state initially lost motions for a temporary restraining order and preliminary injunction, but the companies ultimately opted to terminate the transaction to avoid a costly trial.

At the time, the FTC had only two commissioners and so any challenge would have required the Republican acting chairman and a Democratic commissioner to vote to block it.

What to look for

If the DOJ clears the merger and the states want to file their own challenge, they may need to act quickly. The waiting period that prevents transactions from closing during federal review doesn't apply to the states.

In this case, the FCC’s involvement adds some uncertainty. Even if the DOJ greenlights the merger, the parties can't close unless they also receive FCC clearance. The FCC typically issues its decision after the DOJ.

The DOJ and FCC review deals in parallel and are usually aligned on outcomes, although it is not yet known whether that will be the case here.

State public utility commissions in Pennsylvania, California and Hawaii are also investigating the deal, and at least in California, a decision may still be months away.

Regardless, if the DOJ clears the deal and the states decide to sue, they would likely file a complaint in federal court in short order and seek a preliminary injunction.

New York and California are among the states taking leading roles in investigating the deal, it is understood. The case could be filed in those states, or potentially in DC, with other states joining.