Storefront sign for T-Mobile
Photo by Mike Mozart on Flickr.

District Judge concludes T-Mobile/Sprint Merger does not Violate U.S. Antitrust Law

On February 11, 2020, District Court Judge Victor Marrero concluded that the $26 billion merger of Sprint with T-Mobile did not violate U.S. antitrust laws. Judge Marrero rejected the claims of fourteen states that sued to block the merger and found that efficiencies and other benefits of the transaction made the merger procompetitive.

Over the last twenty years, prices for cell phone plans in the United States—relative to Europe—have become increasingly expensive. According to Thomas Phillipon, Professor of Finance at the N.Y.U. Stern School of Business, the relative difference in prices is attributable to a lack of competition resulting from increased industry concentration. In his opinion, Judge Marrero concluded that the states provided sufficient evidence that the merger would lead to potentially anticompetitive levels of concentration. Nonetheless, Judge Marrero cited evidence of merger-specific and verifiable efficiencies to conclude that the procompetitive benefits of the efficiencies —$26 billion in network cost savings and another $17 billion in other operating costs savings—mitigated the anticompetitive concentration levels articulated by the plaintiff states.

Members of the House of Representatives, union leaders, and public interest groups raised concerns during the merger review process about the cost savings and efficiencies attributable to job losses and layoffs.  In congressional hearings evaluating the potential impact of the merger, members on the House Antitrust Subcommittee and the House Communications and Technology Subcommittee raised concerns about the merger’s impact on labor markets. However, none of these concerns made their way into Judge Marerro’s opinion. As Gigi Sohn, Senior Fellow at the Georgetown Law Center on Law and Technology, explained, “one of the key rationales for the merger is ‘efficiencies’ which means getting rid of redundant stores and personnel. Even the trial judge mentioned that… I’ve never seen a merger that has resulted in more jobs, and [T-Mobile’s] promises are unenforceable.”

T-Mobile lauded the decision in a press release, reiterating some of the procompetitive efficiencies Judge Marrero relied on in his decision. New T-Mobile, as the merged firm is called, believes that the merger will have a variety of benefits, including speeds five times faster than the current LTE, major telecommunications construction to expand network capacity for rural Americans and vulnerable urban populations, and the same or lower prices for services over the next three years.

Judge Marrero’s decision cited evidence of Sprint’s decreasing competitive relevance as a contributing factor rebutting the plaintiff states’ claim that the transaction would be anticompetitive. Judge Marrero acknowledged that the so-called “weakened competitor” defense is credited by courts in “rare cases,” but nonetheless concluded that Sprint would meet the “weakened competitor” exception. Given Sprint’s financial difficulties, poor operational qualities, and negative consumer perception, the court found that merging with T-Mobile was the only way to resolve these weaknesses. Open Markets Institute Legal Director Sandeep Vaheesan, heavily criticized this reasoning explaining that “the judge’s decision …permits otherwise illegal mergers if the merging corporations can establish productive efficiencies or show that one of the corporations is a ‘weakened competitor.’ The Supreme Court rejected these defenses because they are contrary to the text and purpose of the Clayton Act.”

Joseph Ehrenkrantz

GLTR Staff Member; Georgetown Law, J.D. expected 2021; ©2020, Joseph Ehrenkrantz