State AG Lawsuits Against Sprint, T-Mobile Merger Keep Coming

Pennsylvania is the latest state to join a coalition of 18 attorneys general suing to challenge Sprint’s merger with T-Mobile, and an analyst said that if they are successful in court, T-Mobile would likely back out of the deal.

 “The merger between T-Mobile and Sprint would severely undermine competition in the telecommunications sector, which would hurt Pennsylvanian consumers by driving up prices, limiting coverage, and diminishing quality,” said Pennsylvania Attorney General Josh Shapiro, in a news release.

The other states that are plaintiff so far include: California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nevada, Oregon, Texas, Virginia, Wisconsin, as well as the District of Columbia. The issue is expected to go to trial in December. Sprint has declined to comment on the matter.

Michael McCormack, an analyst at Guggenheim Securities, said that whoever wins the lawsuit, be it the state coalition or Sprint/T-Mobile, neither side is likely to file an appeal. So if the court rules against the companies, T-Mobile would likely walk away from the merger.

McCormack says he “totally disagrees” that a combined Sprint and T-Mobile would have a negative impact on consumers due to increased pricing; rather, it’s likely that service would improve. Most of the opposition to pricing should have been resolved with the spin-off of the companies’ lower-cost, pre-paid services, Sprint’s Boost Mobile and T-Mobile’s Metro by T-Mobile, which were conditions of Department of Justice approval earlier this year.

“There’s a view that this is a political show,” McCormack said, explaining that the opposition could be translated as a statement against President Trump. “There’s a view that big business is bad, generally, given what is going on in the landscape.”

If T-Mobile were to walk away, things don’t look that great for Sprint. When the company announced the rollout of its 5G service in May, CEO Michel Combes acknowledged that merger would be necessary for a nationwide launch.

After Overland Park-based Sprint reported its most recent quarterly earnings, MoffettNathanson analyst Craig Moffett wrote that “Sprint is losing phone subscribers, EBITDA is falling, and free cash flow remains negative. As a stand-alone entity, their balance sheet is untenable.”

He added: “To wit: Sprint’s network is not good enough to attract new subscribers without large discounts. Once those customers arrive and find out that the network isn’t very good, they leave. The short customer lifetimes, coupled with promotionally high subscriber-acquisition costs, mean customer lifetime value is low, and possibly even negative. That starves Sprint of the ability to invest in the network. And so the spiral gets worse. And worse. And worse.”