Texas joins state attorneys general lawsuit seeking to block T-Mobile-Sprint merger

Yesterday, Texas Attorney General Ken Paxton announced that Texas will join attorneys general from 13 other states and the District of Columbia on the lawsuit seeking to block the T-Mobile-Sprint merger. Separately, a federal judge announced yesterday that the state lawsuit would begin in December, granting the states’ request for a delay. 

In a press statement, Texas AG Paxton emphasized that the announced divestiture deal with DISH did not alleviate his concerns about the harmful impact of the merger on “working Texans,” noting: “After careful evaluation of the proposed merger and the settlement, we do not anticipate that the proposed new entrant will replace the competitive role of Sprint anytime soon … The bargain struck by the US Dept. of Justice is not in the best interest of working Texans, who need affordable mobile wireless telecommunication services that are fit to match the speed and technological innovation demands of Texas’ growing economy.”

“The news that Texas has joined the states’ lawsuit underscores that the T-Mobile-Sprint merger is and remains anti-competitive and harmful to consumers and workers,” said Debbie Goldman, Research and Telecommunications Policy Director for the Communications Workers of America (CWA). “Nothing in the announced divestiture deal remedies these concerns, as Texas AG Paxton clearly recognizes. In fact, as we noted last week, through the announced divestiture deal with DISH, T-Mobile is creating its largest customer, not a new competitor.” 

“The pending state lawsuit is in a strong position,” Goldman continued, “being led by a bipartisan group of attorneys general from some of the largest states in the country and, more critically, having more compelling facts and arguments on their side. We thank Texas AG Paxton and the other state attorneys general for their continued decisive action to stand up for American workers and consumers by seeking to block this harmful and anti-competitive merger.”

Last week CWA issued the following analysis of the DISH divestiture deal and implications:

• Divestiture deal does not replace loss of Sprint as fourth facilities-based carrier. While the reported T-Mobile-DISH agreement includes divestiture of Sprint pre-paid customers, tower and equipment assets, a wholesale agreement with T-Mobile, it does not replace the loss of Sprint as a fourth facilities-based carrier. Sprint has 32.8 million post-paid subscribers and 12.5 million wholesale subscribers. These are not replaced by a divestiture of pre-paid customers to DISH. 

• Divestiture deal creates T-Mobile’s largest customer, not a true competitor: The divestiture deal creates an MVNO, not a facilities-based carrier. Therefore, DISH would remain dependent on T-Mobile and would not be an independent competitor – that’s why the divestiture deal creates a new customer for T-Mobile, not a true competitor. 

• The DOJ and FCC conditions do not mention jobs or take the harmful impact on workers seriously - the divestiture deal will not save these jobs. CWA’s economic analysis shows that the merger will lead to the loss of 30,000 jobs due to closing of duplicative stores and headquarters functions - the Boost divestiture will not save these jobs. MVNOs typically operate on low-margins and do not operate their own stores.  Additionally, there will be a negative impact on wages across the wireless industry, as a detailed study by the Economic Policy Institute and the Roosevelt Institute demonstrates.

• DISH has a history of non-compliance with federal rules, including hoarding spectrum. DISH and its CEO Charlie Ergen have a history of non-compliance with federal rules. He has hoarded spectrum since 2013 and failed to meet promised build-out requirements. He has a looming deadline in March 2020, with little capital to finance the build. The FCC and federal courts found him in violation of FCC spectrum auction rules by setting up two DISH-controlled companies, claiming $3 billion in “small entity” credits. 

• It will be difficult if not impossible to enforce the announced divestiture conditions. The conditions announced by DOJ are both complex to implement and difficult for the government to enforce.  Recently, the European Commission has alleged that Telefonica Spain failed to abide by similar conditions in a telecom deal five years ago. This should be a warning about what is likely to happen when the government gets into the business of trying to create a new competitor out of whole cloth and then overseeing the result.  Another European precedent is also telling: In Italy, a mandated MVNO divestiture to Iliad Italia has resulted in a company whose pricing does not support the capital required to build its own network, which was the main goal of the divestiture. Antitrust is law enforcement, not an invitation for the government to play kingmaker. 

• DISH’s lack of experience and capital means that it is being set up to fail.  DISH has never built or operated a wireless network. It lacks the tens of billions of dollars of capital necessary to create a nationwide 5G network.  It has never sold pre-paid wireless services like Boost. In short, DISH is an illusory buyer, not a real fourth competitor. Unfortunately, when DISH fails or sells out, the harm will already have been done.  Lower-income customers and workers already will have paid the price.