A U.S. judge has ruled in favor of T-Mobile US Inc.’s deal for Sprint Corp., joining President Donald Trump’s competition regulators in their perplexing move to approve a merger that has the potential to go down in history as among the most harmful to American consumers.
District Court Judge Victor Marrero issued his decision Tuesday morning, handing a surprise victory to T-Mobile and Sprint. News reports will call it a blow to the group of state attorneys general who brought the lawsuit to try to stop the merger, but it’s a bigger blow to wireless-phone customers. They may see plan prices creep up as a consequence of a more concentrated industry to be dominated by the new T-Mobile, AT&T Inc. and Verizon Communications Inc., even though the judge wasn’t convinced that would be the case.
The companies’ triumph comes as a shock to investors, who rightly saw all legal precedent and conventional wisdom about antitrust regulation pointing to the deal getting blocked. Indeed, previous government administrations did deem a T-Mobile-Sprint deal off limits for the same reasons. In recent weeks, shares of Sprint traded at a massive discount to the value of T-Mobile’s offer — some days a spread as wide as 80% — in a sign of traders’ apprehension about the deal’s fate. Sprint’s stock price shot up Tuesday on word of the ruling.
The deal will give T-Mobile a level of market power it’s never had by removing its fiercest and cut-rate competitor, Sprint. It effectively calls off the industry price wars that their own rivalry sparked in recent years. These skirmishes benefited consumers who were presented with affordable unlimited-data plans as smartphones became the center of communication.
In court, the state lawyers, led by Letitia James of New York, argued that allowing T-Mobile to buy Sprint would result in costlier service. “No, it won’t, just trust us,” was essentially the companies’ response, with T-Mobile CEO John Legere figuratively waving a 5G-embossed American flag in one hand, his other fingers crossed behind his back.
The companies pushed the notion that a combined T-Mobile-Sprint will be better-equipped to deliver the ultra-fast next generation of wireless networks to Americans, creating the illusion that without the deal, the country’s 5G ambitions would be somehow diminished. And yet the biggest beneficiary of this deal’s approval is a Japanese billionaire by the name of Masayoshi Son, whose telecommunications conglomerate, SoftBank Group Corp. of WeWork investment-disaster fame, is also Sprint’s controlling shareholder. Selling to T-Mobile bails him out of a bet gone wrong on the U.S. wireless market’s weakest player and instead hands him a stake in the fastest-growing player. (To be sure, the terms of the all-stock deal are likely to be renegotiated to account for Sprint’s shrinking value since the transaction was initially struck in April 2018.)
It all proved to be a persuasive enough argument for Ajit Pai, the chair of the Federal Communications Commission, and Makan Delrahim, the Department of Justice’s antitrust chief, who each approved the transaction in exchange for mild concessions. Both were appointed by Trump, who has been cheerleading for the U.S. to lead in the so-called 5G race, namely against China. The states emerged as an unusual last line of legal defense, and their defeat could embolden more companies operating as direct competitors in similarly highly concentrated industries to pursue tie-ups.
Ironically, the Trump administration this week asked Congress for more funds to expand its antitrust oversight. “Because God has a terrific sense of humor, yesterday was the day the DOJ announced it was adding 87 new staffers and a 71% budget increase for the antitrust division,” Blair Levin, a U.S. policy and regulation analyst for New Street Research, wrote in a report Tuesday morning. “Is it to deal with all the new cases that, based on this precedent, will now be viable?”
Regulators have placed incredible faith in Dish Network Corp. and its wily chairman, Charlie Ergen, to help maintain competition in the wireless market by putting the satellite-TV billionaire on the receiving end of T-Mobile and Sprint’s concessions. Dish, a wireless wannabe, will have access to T-Mobile’s network while it constructs its own using the spectrum licenses Ergen has stockpiled over the years. But Dish has a long way to go to ever fill the hole that Sprint will leave behind.
Some say Sprint would be gone soon anyway because of its financial distress, and therefore T-Mobile should be allowed to acquire it before Verizon and AT&T get to dance on its grave. But if the only options are a) allow a merger that makes the market leaders even more powerful, or b) block the merger, allow Sprint to die and open the door for concentration to happen another way, then that right there signals too much market power is already held in too few hands. It’s also hard to imagine that Sprint, a willing seller that has 42 million retail wireless subscribers and a boatload of valuable spectrum, wouldn’t attract other acquirers if a T-Mobile deal were blocked. Now we’ll never know.
When the FCC, DOJ and a federal judge all agree that a merger should get the A-OK, the decision may be presumed justified. But fascination with 5G and Dish’s maybe-someday entry doesn’t change this: reducing the market from four to three national carriers can’t possibly be good for consumers. As for Sprint shareholders, it's a good day to buy a lotto ticket.
Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.
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