T-Mobile and Sprint Hit a Major Roadblock

The Department of Justice is still scrutinizing T-Mobile's (NASDAQ: TMUS) proposed megamerger with Sprint (NYSE: S), after the two companies secured the blessing of the Federal Communications Commission. Antitrust regulators at the DOJ are reportedly unsatisfied with the concessions that T-Mobile and Sprint have offered thus far and are said to want the companies to facilitate the creation of a fourth national wireless carrier if allowed to merge (which undermines much of the deal's rationale in the first place).

The $26 billion deal just hit a major roadblock.

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Ten state attorneys general have just filed a multistate lawsuit seeking to block the proposed megamerger, even as the DOJ has yet to make its own final decision regarding the deal. The New York attorney general's office made the announcement, with New York, California, Colorado, Maryland, Michigan, Mississippi, Nevada, Virginia, Wisconsin, and the District of Columbia all joining forces in an effort to halt the transaction.

"When it comes to corporate power, bigger isn't always better," New York Attorney General Letitia James said in a statement. "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 New York and in urban areas across the country."

The biggest concern is the potential impact on consumer prices for wireless service, according to the press release. T-Mobile and Sprint have argued that combining will allow them to pose a greater competitive threat to larger carriers AT&T and Verizon, while reducing the number of national carriers from four to three would likely decrease competition. The attorneys general note that intense competition from T-Mobile and Sprint in recent years has resulted in declining prices, increased coverage, and better service quality.

"Direct competition between Sprint and T-Mobile has led to lower prices, higher quality service, and more features for consumers," the prosecutors write in the complaint. "If consummated, the merger will eliminate the competition between Sprint and T-Mobile and will increase the ability of the three remaining [mobile network operators] to coordinate on pricing."

The attorneys general also point out that the average U.S. household spends around $1,100 per year on wireless service, so low-income households would take any potential price increases the hardest.

In a letter to the FCC in February, T-Mobile CEO John Legere committed to not raising prices for three years following the merger's completion, but nothing would stop the combined company, New T-Mobile, from jacking up prices after that time frame.

Additionally, the attorneys general worry that carrier consolidation would result in job losses, particularly at the retail level, including third-party wireless dealers. The merger could also hurt retail wireless worker wages, according to the complaint. T-Mobile and Sprint have maintained that the deal would result in "thousands" of new jobs. "From the first day Sprint and T-Mobile combine and every year thereafter, the new company will employ more people in the U.S. than both companies would separately," the companies said when initially announcing the agreement.

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Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US and VZ. The Motley Fool has a disclosure policy.