T-Mobile's Merger Prospects Look Grim Ahead of 'Trial of the Century'
T-Mobile's lawyers are gearing up for what one analyst is calling the antitrust "trial of the century," an event scheduled to start Monday that will pit around a dozen state attorneys general against two of the nation's biggest wireless network operators that are seeking to become one.
Whatever the outcome, the wireless industry will never be the same.
However, if the past year is any indication, there's no telling what will happen over the course of the next few weeks, given that the proposed merger between Sprint and T-Mobile has had more twists and turns (a $5 billion transaction with Dish! political posturing! apparent financial chicanery!) than even the best 80s-era soap opera.
All this drama is casting a decidedly negative cloud over forecasters' prognostications.
"The states are more likely than not to win," wrote the analysts at Wall Street firm New Street Research in an assessment of T-Mobile's chances ahead of what the analysts describe as the "real antitrust trial of the century." They wrote that "the odds remain close" but that T-Mobile and Sprint suffer from weaknesses "in the companies' market definition, reliance on economic arguments with little support in antitrust precedent, a zig-zag approach to the DoJ and FCC's judgments, a reliance on behavioral remedies to justify the fix and a reliance on public interest considerations, such as social or industrial policy, that generally are considered irrelevant to competition analysis."
At least, that was New Street's primary takeaway from the pretrial memos that lawyers for Sprint and T-Mobile and the opposing state attorneys general (AGs) filed ahead of their Monday court date. In its 16-page review of the memos, the Wall Street firm covered a wide range of obscure legal topics that both sides in the case are likely to debate during a trial.
Others agree that there probably won't be a speedy resolution to T-Mobile's merger transaction with Sprint. "We believe the odds that T-Mobile is able to secure a settlement before the trial begins are low, although the company will likely be pushing hard even in the final hours before the trial starts," wrote the analysts at Wall Street research firm LightShed.
Indeed, the firm provided a handy scorecard showing exactly which state AGs still oppose the proposed merger, and which support the merger. This is particularly helpful in light of T-Mobile's work to flip a handful of individual state AGs onto its side in recent weeks.
That said, it's worth noting that Wall Street investors generally appear to be behaving as if Sprint and T-Mobile will ultimately be successful in closing their proposed merger, at least according to one Bank of America report.
It gets worse
If you're confused -- fear not! It gets more complicated. Even though the proposed merger was announced almost 19 months ago, there are still so many moving parts in the transaction beyond the AG lawsuit that it's difficult for even the most adroit legal observers to remain on top of things. Here's just a smattering of the other, still-unresolved issues surrounding the transaction:
- As noted by Tellus Venture Associates, the California Public Utilities Commission is scheduled to hold hearings this week on the proposed merger, with testimony from executives from T-Mobile, Dish Network and others. The agency has not yet signed off on the proposed merger.
- Judge Timothy Kelly, a Trump appointee, has still not approved the Department of Justice's merger settlement with T-Mobile for the merger. As the LightShed analysts noted, the judge's "Tunney Act" review is typically routine, but if the judge does not agree to the deal, "that would be a negative development for T-Mobile."
- Although the FCC has given its blessing to the proposed merger between Sprint and T-Mobile, the agency hasn't yet officially approved changes to the terms of Dish's spectrum licenses. That's critical considering Dish needs that approval in order to build the 5G network it told the Department of Justice it would build. "Neither Defendants nor this Court can predict with certainty how the FCC will ultimately resolve these issues," the state AGs wrote in their pretrial memo, according to the New Street analysts.
- Finally, many analysts expect T-Mobile parent Deutsche Telekom to renegotiate better terms for the merger between T-Mobile and Sprint. Factors pushing DT to renegotiate the merger agreement include a new disclosure by the FCC that Sprint improperly collected "tens of millions" of dollars in federal Lifeline subsidies for 885,000 customers who weren't actually using the service. Incredibly, a new report from the Wall Street Journal this week that found Sprint also made similar mistakes in tallying how many subscribers were using Lifeline service in 2013 and 2014.
Whatever ultimately happens in the proposed merger, the implications for the wireless industry are far reaching, to say the least. If Sprint and T-Mobile do successfully merge, they will command a huge amount of spectrum for 5G, which the new company could use to put pressure on AT&T and Verizon. Concurrently, Dish Network would immediately enter the industry as an MVNO and, potentially, as a new greenfield wireless network operator.
However, if the merger is ultimately scuttled, T-Mobile will likely look to other sources of spectrum, be it the C-Band or, potentially, Dish's vast spectrum holdings. Sprint, meantime, will be left to evaluate whatever other options it has, including possibly bankruptcy.
"If God forbid we do not prevail in the litigation there will be a discussion among the parties about next steps," Sprint Chief Legal Officer Jorge Gracia told employees during a Sprint town hall meeting last month, according to an SEC filing from Sprint. Gracia did not provide details.
Further, the resolution of the merger between Sprint and T-Mobile could even impact sectors beyond the wireless industry, considering the transaction pushes against some of the government's basic antitrust rules. The analysts from New Street wrote that a victory for Sprint and T-Mobile "opens the door for many more deals" because it will "create a precedent that others will be able to use to stretch the boundaries for permissible deals."
But if the state AGs win, "it will have a significant impact on the antitrust process," the New Street analysts wrote. "It will effectively create another 'door' on the path to approval, in the sense that any controversial deal will have to consider a strategy for addressing the states' antitrust authority."