District Court Opinion in State’s Challenge to Sprint-T-Mobile Marks New Low in Weak Merger Control; Consumers Will Bear the Burden

Today, a U.S. district court in New York issued its opinion rejecting the challenge brought by a coalition of state Attorneys General seeking to block the merger of Sprint and T-Mobile. The decision clears the way for the proposed merger to proceed. Separately, a U.S. district court in Washington, D.C. has yet to decide whether to approve the proposed settlement between the merging parties and the U.S. Department of Justice (DOJ). Approval of the settlement would push the deal toward completion.

“The States deserve enormous credit for bringing this case in the wake of failed federal enforcement,” said American Antitrust Institute (AAI) President Diana Moss. “Consumers will bear the ultimate burden of this disappointing decision through higher prices, lower quality, and diminished innovation in essential wireless telecommunications services,” she added.

AAI expressed alarm that the opinion ignores the basic economic reality that, in a market with only three remaining players, incentives to compete are substantially weakened. AAI’s past analysis of the Sprint-T-Mobile merger highlights the considerable economic evidence demonstrating that four-to-three mergers increase incentives for firms to collude and harm consumers.

The district court’s opinion reflects a disturbing interpretation of U.S. merger law, at a time when stronger enforcement is badly needed. The opinion discounts hard evidence offered by the States—and accepted by the Court—showing that the merger will harm competition by eliminating a rival in highly concentrated markets. In lieu of relying on that evidence, the opinion invokes highly unusual and dubious arguments as to why purported harms from the merger would not materialize.

“The Court’s notion that the managers of a merged Sprint and T-Mobile will act in the interests of competition and consumers after the merger defies economic reality,” said Moss. Removing a rival from a market changes the remaining firms’ profit-maximizing calculations. “Any rational firm will act on stronger incentives to exercise market power, rather than pursuing socially benevolent ‘good guy’ strategies. Coherent merger law requires that basic assumption,” she added.

The opinion also relies on troubling arguments to support fact-findings that undermine the core of antitrust enforcement. These include the court’s idea that the dynamic and complex nature of the wireless markets, their importance to the national economy, and the supposedly imminent failure of Sprint as a standalone rival ameliorate concerns that that the merger is presumptively anticompetitive.

Finally, in conducting its review, the court inappropriately relaxed the merging parties’ burden of proof in showing that the Dish Network divestiture and other behavioral aspects of the DOJ’s settlement adequately resolve the threatened competitive concerns. “The merging parties were supposed to have to show how Dish Network could realistically step into the void and restore the competition lost by the merger,” said Randy Stutz, AAI Vice President of Legal Advocacy. “The opinion barely applies the burden-shifting framework that is supposed to govern merger cases, conflating efficiency and remedial considerations with the government’s strong prima facie case,” he added.

“AAI will be watching closely in the aftermath of this proceeding,” said Moss. Evidence on the harmful effects of past mergers and failed merger remedies is rapidly accumulating. The Sprint-T-Mobile decision adds significantly to the pile.