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T-Mobile and Sprint head to court: Everything you need to know

Fourteen attorneys general are suing to stop the megamerger. T-Mobile and Sprint say consumers will suffer if it doesn't go through. The trial begins today.

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T-Mobile and Sprint will face off in court with state attorneys general over the fate of their merger. 

Richard Levine/Getty Images

The fate of the $26 billion megamerger between T-Mobile and Sprint is in the hands of a federal judge. The companies head to court today, where they'll defend their deal to combine the third and fourth largest wireless carriers in the US against a challenge from state attorneys general who say the merger will hurt competition and lead to higher prices.

Lawyers for Sprint and T-Mobile have already struck settlements with five states, but 14 attorneys general, led by those of California and New York, continue their fight to block the deal, in spite of approvals from the Federal Communications Commission and the Department of Justice.

The trial is expected to last two to three weeks, and a decision from District Judge Victor Marrero in the Southern District of New York is expected in February, according to people familiar with the proceeding.

A lot hangs in the balance. The merger, announced more than a year ago, could bring about a seismic shift in the mobile world. One of the conditions of the deal is the divestiture of assets to Dish, giving consumers another potential alternative. The satellite TV provider vows to cover 70 percent of the US with 5G by 2023. T-Mobile and Sprint's combined assets could jump-start the merged entity's 5G ambitions, pushing the industry further into the next-generation technology. The two companies have also said they'll lock in prices for at least three years. 

Experts and economists from both sides are expected to testify on whether the merger benefits consumers and what the merger will do to competition in the wireless market, as well as Sprint's prospects for remaining a standalone company. 

The deal with Dish, which includes the sale of Sprint's prepaid business along with $5 billion worth of spectrum, is supposed to preserve the government's goal of having four competitors, though it's unclear how wide-ranging the Dish service will be.

Here's what you need to know. 

The argument against the deal

The 13 states, along with the District of Columbia, suing to stop the merger say their case is simple: Reducing the number of nationwide wireless carriers from four to three also reduces competition and is "under well-established law, presumptively illegal." That's the gist of the 30-page court document filed by New York Attorney General Letitia James and California Attorney General Xavier Becerra ahead of the trial. 

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The main argument they will make in court is that combining T-Mobile and Sprint will reduce competition and violate the federal Clayton Act. This will ultimately lead to higher prices for consumers and fewer choices, they say. Specifically, they argue that if the merger is allowed, AT&T, Verizon and the new T-Mobile would be more likely to coordinate their behavior, leaving consumers worse off. 

"Competition between these four rivals, and especially between Sprint and T-Mobile, has resulted in enormous benefits for consumers, including lower prices and innovative features like no-contract plans and unlimited data plans," the states say in their court filing. "Unsurprisingly, this 'four to three' merger would dramatically increase market concentration in an already highly concentrated industry."

The states, which filed their lawsuit in June, say the DOJ settlement isn't enough. They argue that the DOJ's proposal to prop up Dish as a fourth competitor is too risky. The satellite TV provider has no network, no experience operating one and no retail stores. 

"The court should not permit defendants to proceed with an anticompetitive merger based on the hope that Dish will one day grow into a viable wireless company equal to a competitor that already exists today," the states argue in their filing. 

Sprint and T-Mobile's argument

The main argument Sprint and T-Mobile will make is also simple. They say that Verizon and AT&T, the No. 1 and No. 2 wireless carriers in the US, are far bigger than either of the two companies. A merger between Sprint and T-Mobile would create a stronger competitor that could offer lower prices and more innovative services, like 5G.

The companies say the operational efficiencies and combined wireless spectrum portfolio they'd gain through a merger would let them build out their networks much faster and at much greater scale than if they operated separately. They say this will be especially beneficial as they expand their next generation 5G networks. 

Specifically, T-Mobile has promised the FCC that it will provide 5G service to 97% of the US population within three years. And within six years, it will cover 99% of the US with 5G. For rural Americans, the coverage would be 85% within three years, and 90% within six.

T-Mobile has also promised to offer a broadband alternative to rural customers and has guaranteed that 90% of Americans will see mobile broadband service at speeds of at least 100Mbps if the deal is approved. 

T-Mobile argues it has proved in the past to be a disrupter in the market. And it says it has no intention of changing that trajectory following the merger. In fact, the company argues that prices will actually go down for consumers postmerger because as the company increases capacity, it'll need to fill the network with users and thus it'll actually lower prices to attract customers. And because of the operational efficiencies of combining the two companies, it'll be able to afford to slash these prices. 

What else has been promised?

T-Mobile has made formal commitments to the FCC to not raise prices for three years. Additionally, last month the company announced several other promises to help sweeten the deal, such as a $15-a-month phone plan; a pledge to offer free 5G service to police, firefighters and emergency medical technicians for the next decade; and a program to offer home broadband access and a mobile hotspot for free to 10 million low-income households with children.

In negotiations with individual states, T-Mobile has also promised not to cut jobs and to keep customer service centers located in the US. 

These promises have worked to peel off five states from the lawsuit. Lawyers for the companies have settled with Texas, Nevada, Mississippi, Florida and Colorado. Colorado, which is where Dish is headquartered, has not only withdrawn from the litigation, it's also joined T-Mobile in its legal defense. 

At one point, the lawsuit had as many as 18 plaintiffs, with Washington, DC, and 17 states. Now 13 states are suing to block the merger. 

As for how the companies will combat the antitrust allegations made by the states, sources close to the companies say they'll argue that there's plenty of competition in the wireless market, namely from cable providers, like Comcast and Charter. These cable providers use a combination of Verizon's wireless network and their own Wi-Fi networks to provide mobile phone service to their cable subscribers. 

The deal with Dish

But T-Mobile and Sprint also believe that the deal struck with Dish will establish another key national carrier that'll provide competition in the market. 

Dish already owns billions of dollars' worth of its own spectrum, but the company has yet to build its own wireless network. Some have accused Dish of hoarding valuable wireless spectrum, and it has yet to make a major announcement about the plans for its spectrum. 

Purchasing the divested prepaid businesses, getting additional airwaves and adding the ability to begin offering service on the T-Mobile network while it builds its own would make it easier and more cost-effective for Dish to finally become a wireless competitor. 

Dish's chairman and CEO, Charlie Ergen, says the company is ready to enter the market and compete. He says the deal struck among regulators, T-Mobile and Dish is a win-win-win. 

"That company (Sprint) now gets stronger, and T-Mobile gets stronger against the two large incumbents, AT&T and Verizon," Ergen said following the company's earnings call last month. "And as part of the transaction, Dish builds a greenfield network that will be the envy of the world ... which will bring not only competition to the marketplace, but will bring innovation in a way that you just can't do with incumbent networks."

T-Mobile and Sprint are still willing to negotiate a settlement, according to people familiar with their thinking. And a deal could still shake out once the trial begins next week. But if a settlement can't be reached, a judge will have the final say. 

The published on Dec. 6 at 12:51 p.m. PT.