Forget 12 Angry Men and A Civil Action. Ignore all those John Grisham novels. The best courtroom drama in recent memory is playing out this week in New York City, where executives from Sprint and T-Mobile are fighting a lawsuit geared to block their proposed merger.
The trial started Monday and is set to run through next week, and is expected to wrap up before the holidays. Indeed, the judge in the case called off lawyers' traditional opening statements in order to expedite the proceeding.
Opponents of the proposed merger -- 14 Democratic state attorneys general (AGs) -- have been presenting their side of the case in recent days, and so far there have been a number of gasp-inducing twists and turns -- maybe not quite at the level of Erin Brockovich but certainly noteworthy inside the telecom industry.
- As Bloomberg reported, state AG lawyers pointed to a WhatsApp message that Sprint CMO Roger Sole sent Sprint's Marcelo Claure in 2017 that suggested a merger with T-Mobile could raise Sprint's average revenue per user by $5. "The benefit of a consolidated market," he wrote in comments that appear to fly directly against the companies' argument that the proposed merger won't reduce competition in the marketplace. Claure didn't respond to the message, and merger supporters argued Sole was simply speculating on long-term possibilities.
- Similarly, according to a note from the Wall Street analysts at New Street Research, the states also highlighted a text from T-Mobile's John Legere to Timotheus Höttges, chairman of T-Mobile's board, that read: "regulatory environment never better than now. 4 to 3 and 35b of synergies are big prizes." The reference to the US wireless industry shrinking from four nationwide providers to three again underscores the states' argument that the merger would reduce competition in the US wireless industry. However, the analysts wrote in a note to investors that "this kind of evidence is not the kind upon which the court will base its final decision; that is more likely to be the economic evidence that the experts will provide later in the trial."
- The judge in the case appeared most interested in how Dish Network might be positioned to replace Sprint as a fourth nationwide wireless network provider if Sprint and T-Mobile are permitted to merge. According to the New Street analysts, the judge asked Höttges whether Dish can scale its operations and whether it can compete in the long term.
- Finally, an interesting subplot to emerge during the proceeding involved Dish's Charlie Ergen and his negotiating tactics. Höttges testified that Ergen was "not easy to deal with," according to Reuters. And the analysts at New Street said that Höttges met with Amazon executives after rumors surfaced in 2017 indicating that Amazon was interested in some kind of wireless partnership with Dish. Amazon, Höttges wrote, "clearly denied being interested" in a Dish partnership, and he said he believed the whole thing was "another one of Charlie Ergen's stupid bluffs."
It's important to note that the states are currently providing their evidence against the merger, and that lawyers for Sprint and T-Mobile will have their chance to present their case after that. Further, executives ranging from T-Mobile's John Legere to Dish's Charlie Ergen to Altice USA's wireless chief Hakim Boubazine are scheduled to testify in the coming days. We'll keep our eyes peeled, but there's still no evidence that Jack Nicholson will take the stand.
While there's no telling which way the case will turn, some analysts believe things are not going well for Sprint and T-Mobile. "The fact there are still 14 AGs involved plus the lack of settlement … leads us to lower our odds of deal approval from 85% to 55%," Wall Street research analysts at Raymond James wrote this week in a note to investors.
"The states, as the plaintiffs, gained some yardage as they had an opportunity to introduce documents from the companies that undercut the companies' characterization of the purposes and likely outcome of the merger," agreed the analysts from New Street after the first day of proceedings, adding that it was "a tough day" for Sprint and T-Mobile.
Indeed, Fox Business reported today that "low-level negotiations" have begun between Sprint and T-Mobile and the state AGs over a possible settlement that would bring the trial to an end. However, there's no telling whether those talks will bear fruit.
Nonetheless, it's fair to say that, whatever the outcome, the case will affect the entire wireless industry and, potentially, the wider US business marketplace.