According to a report from Reuters, at least ten state attorneys general -- led by New York's Letitia James -- are preparing to sue to block the proposed merger between Sprint and T-Mobile.
"This is bad news for the deal, though with a potential silver lining, as well as the implications for the current negotiations currently underway at the DoJ," wrote the analysts at Wall Street firm New Street Research. "The precise process forward is pretty murky, but we now expect a court to at least have a substantive hearing on the matter. However it plays out in the courts, the process now looks like it will take longer and the odds of closing are lower than believed after the FCC announcement of support three weeks ago."
Sprint's stock fell more than 5% on the news, while T-Mobile's shares fell around 2%.
As the analysts at New Street Research noted, the reported lawsuit adds another layer of uncertainty -- and complexity -- to a transaction that already has healthy helpings of both.
"As with much of this deal, we are in uncharted territory," the analysts wrote, explaining that there are now a wide range of possible outcomes and possibilities, including protracted court proceedings between Sprint and T-Mobile and the state attorneys general.
Also unclear is how the lawsuit will impact ongoing proceedings at the Department of Justice. Although the FCC's Chairman, Ajit Pai, gave his blessing to the proposed merger of Sprint and T-Mobile with relatively minor conditions, the DoJ still has not given a public position on the transaction. However, reports indicate DoJ staff have recommended against the merger; DoJ antitrust chief Makan Delrahim is still negotiating with the companies and may be looking for some kind of deal with additional conditions, including the creation of a fourth US wireless network provider.
"Delrahim, in our view, is still trying to convince various parties to strike a deal that gets him out of the box that Pai put him in: either choose to be on the side of 5G and rural deployment (two important goals for the FCC and more important, the White House) or side with the DoJ staff and states that care much more about competition than about such policy objectives," the New Street analysts wrote. " We think that state filing puts more pressure on those negotiations to produce a deal that actually could produce a viable fourth player, but Delrahim was already on pressure to do so."
Of course, the lawsuit from the ten state attorneys general is just the latest development in a long and twisted path Sprint and T-Mobile are taking in their attempts to merge. Indeed, the merger recently became wrapped up in presidential politics, with a group of Democratic senators asking the DoJ whether President Trump or anyone else in the White House sought to interfere in the DoJ's review of the transaction.
Questions around Boost and FreedomPop
Perhaps the most curious development in the process though was the FCC's agreement with Sprint and T-Mobile to divest Sprint's Boost prepaid business. Bidders for that operation reportedly stretch from FreedomPop to Amazon.
And just last week STS Media -- the company behind the prepaid FreedomPop MVNO brand -- disclosed that it sold off the FreedomPop brand and customer base to rival MVNOs Ting and Red Pocket Mobile. Reuters reported that the sale was geared to help STS chief executive Stephen Stokols mount a bid for Sprint's Boost business. However, Boost founder Peter Adderton -- who himself is mounting a bid for Boost -- said the sale of FreedomPop has nothing to do with the potential sale of Boost and instead reflects the fact that "the free model and MVNO model in the US is broken."
FreedomPop was reportedly an MVNO using both Sprint and AT&T's networks. STS sold 150,000 FreedomPop customers on Sprint's network to Ting for "up to" $3.6 million. The company did not disclose the terms or details of its transaction with Red Pocket.