Colorado among states suing to stop $26.5 billion Sprint-T-Mobile deal

A T Mobile and Sprint store sit side-by-side in a strip mall

A T Mobile and Sprint store sit side-by-side in a strip mall

A group of state attorneys general led by NY and California are filing a lawsuit to block T-Mobile's $26.5 billion bid for Sprint, citing consumer harm.

"This is exactly the sort of consumer-harming, job-killing megamerger our antitrust laws were created to prevent", New York's Attorney General Letitia James said in a statement, adding: "When it comes to corporate power, bigger isn't always better".

Along with James, nine other attorneys general attached themselves to the suit from states including California, Connecticut, Colorado, the District of Columbia, Maryland, Michigan, Mississippi, Virginia, and Wisconsin.

Consumer advocates, labor unions and many Democratic lawmakers worry that the deal could mean job cuts, higher wireless prices and a hit to the rural cellphone market.

James also said her office did not notify Justice before the states filed the lawsuit, adding it was not required for them to do so.

Shares of both companies fell on the news, with Sprint losing 7% and T-Mobile dropping almost 2% Tuesday morning, before regaining some of their losses. "The T-Mobile and Sprint merger would not only cause irreparable harm to mobile subscribers nationwide by cutting access to affordable, reliable wireless service for millions of Americans, but would particularly affect lower-income and minority communities here in NY and in urban areas across the country". "If consummated, the merger will eliminate the competition between Sprint and T-Mobile", the states said in the complaint.

New York State Attorney General Letitia James speaks at a news conference to announce the filing of a federal lawsuit in partnership with at least 10 U.S. state attorneys general to stop a proposed $26 billion merger of mobile carriers Sprint and T-Mobile in New York, U.S., June 11, 2019.

The suit is a major blow for the merger, according to Blair Levin, an analyst with New Street Research. But it does show that the state AGs are taking the issue seriously, and we can expect a serious fight over the merger approval.

The two companies previously tried to combine during the Obama administration but regulators rebuffed them. T-Mobile and Sprint led the return of unlimited-data cellphone plans, for example.

T-Mobile has a reputation for consumer-friendly changes to the cellphone industry.

T-Mobile, trying to reassure critics, promised the FCC it would build out a 5G network and invest in rural broadband on a specific timeframe or pay penalties.

The companies have offered to sell Boost to reduce the combined company's market share in the prepaid business. As yet, the FCC has not formally approved the deal: the watchdog's chairman, Ajit Pai, only put out a statement indicating that he would put it forward for a vote and vote in favor. They have also indicated they were considering divesting wireless spectrum. Japanese tech conglomerate SoftBank owns Sprint, while Germany's Deutsche Telekom owns T-Mobile.

Regulators have yet to sign off on the deal. Consumer advocacy groups have voiced their disagreement with the deal. Staff attorneys at DOJ have reportedly told the companies they won't approve the deal as proposed, but the ultimate decision lies with Makan Delrahim, the top antitrust official who is a political appointee.

Becerra argued that the "merger would hurt the most vulnerable Californians and result in a compressed market with fewer choices and higher prices". So with T-Mobile (TMUS) now trading at $75.35, Sprint's stock (S) should be closer to $7.73 than the current $6.58 if investors were 100% confident that the deal is going to go through.