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By Drew FitzGerald and Brent Kendall
An unusual merger trial starting Monday could have long-lasting effects on the consumer wireless market and beyond by potentially upending the federal government's dominant role in deciding whether corporate rivals can join forces.
T-Mobile US Inc. and Sprint Corp., the country's third- and fourth-largest carriers by cellphone subscribers, are defending their $26 billion plan to merge into a nationwide heavyweight rivaling Verizon Communications Inc. and AT&T Inc. The would-be merger partners must defeat a coalition of 13 states and the District of Columbia, all led by Democratic attorneys general, who are suing to block the deal.
The lawsuit has flipped the script for corporate merger reviews by standing in conflict with the views of the federal government. Federal antitrust and telecom officials, appointed by President Trump, approved the deal earlier this year, believing they addressed the merger's shortcomings through concessions they required from T-Mobile and Sprint.
Legal experts say it is unprecedented for the states to reject such a settlement and sue to block a merger of this size and national scope without the support or involvement of federal authorities.
A victory for the carriers, which say the merger will allow them to offer better services, could arm other companies with new arguments for the benefits of consolidation. But a win for the coalition could give states newfound power in antitrust enforcement when they are also investigating U.S. tech giants.
If the states prevail, "companies will have to take them more seriously, " said New York University law professor Harry First. "They'll have to have really serious discussions with states like California and New York."
"If we have another four years of the Trump administration, we may see more of this," Mr. First said. The Justice Department declined to comment.
Both sides will deliver opening arguments Monday before Judge Victor Marrero in federal court in New York. The bench trial is expected to last about three weeks with testimony from a colorful cast of executives, including longtime T-Mobile boss John Legere, Sprint Chairman Marcelo Claure and Dish Network Corp. Chairman Charlie Ergen. T-Mobile in November said Mr. Legere will step down as CEO next year, part of a long-planned transition that will hand the top job to operating chief Mike Sievert.
Lawyers for the states and companies agreed last week to scrap a potential last-minute meeting to discuss an out-of-court settlement, an acknowledgment that past negotiations haven't borne fruit, according to court filings. The two sides could still reach a deal during the trial.
T-Mobile and Sprint announced their plan to join forces in April 2018. T-Mobile is controlled by Deutsche Telekom AG, and Sprint is controlled by Japan's SoftBank Group Corp. Sprint abandoned an earlier effort to combine in 2014 amid opposition from antitrust officials in the Obama administration.
Federal Communications Commission Chairman Ajit Pai threw his support behind the deal in May, backing the companies' argument that their combined resources would fuel faster investment in fifth-generation, or 5G, cellular service. The FCC declined to comment.
But the Justice Department, which by law is tasked with reviewing a merger's competitive effects, wasn't immediately convinced, and pushed T-Mobile and Sprint to do more to address consolidation that would remove another national wireless carrier from the market.
A group of state antitrust enforcers led by New York and California took advantage of the lag to sue the companies in federal court. Their case makes a simple assertion: Putting together two wireless companies with a record of aggressive discounts would make cellphone plans more expensive than they would be if the two rivals were kept apart.
The Justice Department reached a settlement with the companies in July. The department's antitrust division said it would approve the merger subject to commitments from the companies. They included arming satellite-TV provider Dish with the building blocks for a built-from-scratch cellphone network, which would preserve the market's four-player structure.
Many state officials weren't satisfied, arguing in a pretrial brief that the deal would create "a more staid market with prices higher than they would otherwise be -- billions of dollars higher in the aggregate -- and less innovation."
The companies argued their complementary assets, including valuable radio spectrum licenses, would serve customers more efficiently. "Without the merger, Sprint and T-Mobile will continue to face competitive challenges and escalating costs," the companies wrote, which would allow AT&T and Verizon to maintain their dominant positions.
AT&T and Verizon serve about 100 million domestic customers apiece. T-Mobile and Sprint would approach roughly the same number by combining.
T-Mobile's shares have continued to climb as the company wins more customers. Sprint's stock has slumped as subscribers depart and the deal's outcome remains unresolved. Sprint traded at a roughly 30% discount to the value of the all-stock deal Friday.
"There's definitely been investor fatigue with this one," said Jennifer Fritzsche, a Wells Fargo Co. telecom analyst. "It's gone on almost two years now."
Adding to the drama, the tally of states on either side of the case has seesawed, amid growing tensions between the plaintiffs and the Justice Department. California and New York recruited allies from other states, only to see some defect.
Illinois, Oregon and Pennsylvania joined the states' lawsuit. Colorado, Mississippi and Nevada switched sides after the companies offered them commitments to improve coverage and protect rates.
Texas Attorney General Ken Paxton, a Republican, added political gravity to the mostly Democratic state coalition by joining its lawsuit in August, only to switch sides by settling with the companies in November.
Write to Drew FitzGerald at email@example.com and Brent Kendall at firstname.lastname@example.org
(END) Dow Jones Newswires
December 08, 2019 11:15 ET (16:15 GMT)
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