Failed AT&T Deal Hangs Over T-Mobile’s Sprint Courtship

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By Liz Crampton

Sprint Corp. and T-Mobile US Inc. will have a relatively recent, failed telecommunications merger involving AT&T Inc. lurking behind them while seeking Justice Department approval for their deal.

A decision either way by antitrust enforcers who review the deal, which Bloomberg News reported could be announced by the end of the month, would immediately invite comparisons to the government’s thumbs-down to a 2011 proposed merger between AT&T Inc. and T-Mobile.

The deals aren’t identical given the companies’ different positions in the cell-phone market and the customers they serve. “Facts are different, and facts matter,” Stephen Calkins, a law professor at Wayne State University and former general counsel for the Federal Trade Commission, told Bloomberg Law.

What hasn’t changed is T-Mobile’s continuously innovative pricing. How enforcers parse those factors will set new parameters for what is legally considered a healthy marketplace.

Four Players

The antitrust division’s 2011 lawsuit against the AT&T-T-Mobile transaction, which eventually caused the deal to dissolve, solidified the DOJ’s philosophy that a competitive cell-phone provider market needs to have four major players. That Obama-era sentiment was recently echoed by the FTC’s Democratic Commissioner Terrell McSweeny, speaking at a Roosevelt Institute event on monopolies.

Then, as now, those four players are Verizon Communications Inc., AT&T, Sprint, and T-Mobile. Verizon is the biggest, with AT&T following at a close second. Sprint is third, and T-Mobile is in fourth place.

Sprint and T-Mobile will need to prove to antitrust officials that their combination is different enough from the AT&T-T-Mobile deal that it should be allowed, even though it would reduce the number of major market players from four to three, practitioners told Bloomberg Law.

“It really is true that every merger is judged on the facts of that particular merger, so just because a division challenged a merger of Number Two [AT&T] and Number Four [T-Mobile] doesn’t mean that even the same people would challenge a merger of Number Three [Sprint] and Number Four [T-Mobile],” Calkins said.

A combined Sprint and T-Mobile would make the new company the second largest cell-phone provider behind Verizon, with AT&T following at a close third, according to Bloomberg Intelligence.

T-Mobile, the Disrupter

The AT&T and T-Mobile suit could make it difficult for Sprint and T-Mobile because the Justice Department at the time cast T-Mobile as a disruptive force that shouldn’t be swallowed up by a larger competitor, said University of Wisconsin antitrust law professor Peter Carstensen.

The DOJ has “an institutional commitment to preserving a range of competitors,” he told Bloomberg Law.

T-Mobile has continued those disruptive practices, forcing other providers to follow their lead by, for example, loosening contract provisions to make it easier for consumers to switch carriers.

Consumers couldn’t afford to lose that aggressive competition, the government reasoned in its case against AT&T and T-Mobile. Its complaint said the elimination of head-to-head competition would force millions of consumers to pay higher prices, give them fewer choices, and reduce the quality of mobile wireless services.

But a potential Sprint and T-Mobile deal has important distinctions that could result in a different outcome, James Cooper, an antitrust law professor at George Mason University, told Bloomberg Law.

Sprint and T-Mobile are likely to argue that they need to combine to more effectively compete with “the big guys” — AT&T and Verizon. The DOJ will look at how closely Sprint and T-Mobile compete today, he predicted.

“There’ll be a much more sophisticated analysis than, ‘Four to three. Oh, we only have three players, that’s bad,’’’ Cooper said. Regulators will “look at the data and see how consumers substitute among the carriers.”

Attorneys and economists in the antitrust division will analyze market data provided by the companies, and if they find that Sprint and T-Mobile compete heavily for the same customers, that won’t bode well for the deal because consumers would lose choices.

New Leadership

There are also new leaders at the antitrust division, which ultimately could tip the scales, practitioners say. Makan Delrahim, the assistant attorney general charged with making the final calls on the agency’s actions, started work two weeks ago. He hasn’t commented publicly on the possible Sprint-T-Mobile merger.

Delrahim will likely lean on the division’s chief economist, Luke Froeb, who supervises the economic analysis group’s work on investigations. Froeb is a veteran of the antitrust agencies — he has a prior stint as a staff economist and was director of the FTC’s economics bureau under President George W. Bush.

Even so, other longtime staffers who worked on the AT&T-T-Mobile case will do much of the legwork. Most of the 20 trial attorneys that brought that suit are still working there. Patricia Brink, director of the DOJ’s civil enforcement section and longtime antitrust division veteran, is still in charge.

That may not make a difference, Calkins said. “The fact that they’re the same people just makes it easier for them to quickly get on top of it.”

“In the end, the decision is made by the top management at the division. Though I’m sure they will listen carefully to the staff and the staff recommendation, it’s the leadership that has to make the call,” he said.

To contact the reporter on this story: Liz Crampton in Washington at lcrampton@bna.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bna.com

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