Last Friday, the U.S. Department of Justice (DOJ) approved Sprint and T-Mobile’s merger plan. However, the telecommunications corporations are now facing pushback at the state level. Attorneys general from 13 states and the District of Columbia have filed suit to prevent the $26.5 billion transaction.
On a July 26 conference call, T-Mobile COO Mike Sievert confirmed that his company’s purchase of Sprint wouldn’t go through until the lawsuit is resolved.
Why State Attorneys General Want to Stop the Merger
Though the Federal Trade Commission and DOJ are okay with the consolidation of the telecom sector companies, regional regulators feel differently. The state attorneys general believe that the merger of Sprint and T-Mobile will negatively impact the public. The group argues that if the major carriers combine, consumers will ultimately have to pay more for wireless service.
The prosecutors also reject Sprint and T-Mobile’s assertion that pay-TV corporation Dish Network can become a quality national wireless brand. As per the merger agreement, Sprint will sell its prepaid brands Boost and Virgin Mobile to Dish for $5 billion. Furthermore, T-Mobile is giving the satellite television firm 20,000 cellular base stations and hundreds of stores to facilitate the transaction.
Despite that capital infusion and infrastructural support, the state attorneys don’t believe Sprint and T-Mobile have done enough to mitigate the market consequences of their coming together. “We have serious concerns that cobbling together this new fourth mobile player, with the government picking winners and losers, will not address the merger’s harm to consumers, workers, and innovation,” said New York Attorney General Letitia James.
Last month, a group of 10 state prosecutors filed an official complaint about the merger. The document cited an analyst’s estimate that the merger would cost U.S. consumers $4.5 billion annually.
The state attorneys and the wireless carriers are set to have their day in court on October 7.
Is the Sprint-T-Mobile Merger a Good Thing?
For Sprint and T-Mobile, a merger is undeniably a good thing. Individually, neither carrier possesses the bandwidth or capital to compete with AT&T and Verizon. As a combined entity, the New T-Mobile will have the networking size and subscriber base to legitimately challenge its larger competitors.
For consumers, the merger is a more ambiguous proposition. Its outcome largely depends on Dish’s ability to deliver on its promises. The corporation agreed with the Federal Communications Commission’s mandate to establish a 5G network that encompasses 70 percent of the United States by 2023. If the firm fails to develop its infrastructure by then, it must pay the U.S. Treasury $2.2 billion.
However, if Dish is still pedaling 4G service in five years, consumers won’t benefit from a government sanction. AT&T, T-Mobile, and Verizon will be able to charge a premium for 5G service unchallenged. Wireless analyst Craig Moffett wrote that Dish’s claims of being able to spend billions yearly to establish and maintain a cellular network are “not credible.”
Even if Dish builds a quality next-generation data network by 2023, it’s still facing an uphill battle. Currently, AT&T, Sprint, T-Mobile, and Verizon represent 98.6 percent of the U.S. cellular market. Breaking into an industry like that would be daunting for any corporation, let alone one that must build its services infrastructure from the ground up.
Indeed, the New York Times noted that the average price of wireless services would likely increase because of the merger. Whether it succeeds or fails, Dish will need years to get its new business off the ground. During that time, America’s big three wireless carriers can lower the standard of services for millions of customers.
At this point, the Sprint-T-Mobile tie-in seems good for those firms’ shareholders. However, the deal doesn’t look so great for everyone else.