A lawsuit from 14 states could still block the $26 billion Sprint-T-Mobile deal

The U.S. Justice Department on Friday announced it had reached a settlement to approve a merger between T-Mobile (TMUS) and Sprint (S), the country’s third and fourth largest wireless mobile providers.

But an unresolved lawsuit filed by 14 states attorney general seeking a permanent injunction to stop the merger could keep the $26 billion deal from becoming a reality. Under a case management plan, the merger may not be finalized until six days after a New York district court judge issues a decision in the matter, according to a spokesperson from the New York Attorney General’s office.

The states, including New York, filed a complaint in Manhattan federal court in June alleging the proposed merger would reduce competition, and consequently, drive up retail mobile prices, reduce wireless quality and innovation, and disproportionately harm lower-income and minority consumers.

Makan Delrahim, Assistant Attorney General for the Justice Department’s antitrust division, told reporters Friday that under the terms of the settlement Sprint would be required to divest assets including its prepaid business, and certain wireless spectrum to satellite TV company Dish Network (DISH). Dish would then emerge as a new fourth carrier, behind significantly larger entities AT&T, Verizon, and the new combined company.

A new ‘mega corporation’?

The New York Attorney General’s office spokesperson said the Department of Justice, T-Mobile and Sprint went ahead with the settlement agreement without involving the Attorney General, despite the office’s efforts to reach out to the parties.

Instead, the DOJ said in a press release its Antitrust Division and the offices of five state Attorneys General — Nebraska, Kansas, Ohio, Oklahoma, and South Dakota — both filed an antitrust lawsuit in a federal court in Washington, DC to block the proposed transaction along with the proposed settlement, that “if approved by the court, would resolve the Department’s and the Plaintiff States’ competitive concerns.”

“T-Mobile and Sprint are asking Americans to trust that this new mega corporation will act directly against its own economic interests by helping transform DISH into an independent competitor that rivals this new company,” New York Attorney General Letitia James, said in a press release responding to the DOJ’s agreement.

Critics have expressed concerns that Dish, with or without acquiring assets from T-Mobile and Sprint, may not establish itself as a strong enough competitor to the remaining three companies to curbing anticompetitive behavior.

According to Global Competition Review reporter, Ben Remaly, Delrahim responded to the concerns by saying there is “no magic number,” though a reduction in the number of total national carries to three would have made price coordination more likely.

James expressed doubt that Dish could step in to fill Sprint’s shoes, saying Dish had never owned a mobile wireless business and lacked experience building and operating a nationwide mobile wireless network.

“The promises made by DISH and T-Mobile in this deal are the kinds of promises only robust competition can guarantee,” James said. “We have serious concerns that cobbling together this new fourth mobile player, with the government picking winners and losers, will not address the merger’s harm to consumers, workers, and innovation.”

In addition to New York, the states suing to block the deal include California, Colorado, Connecticut, the District of Columbia, Hawaii, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nevada, Virginia, and Wisconsin.

Delrahim said the Justice Department planned to send a copy of the settlement agreement today to the judge handling the multistate effort to block the deal.

Alexis Keenan is a New York-based reporter for Yahoo Finance and former litigation attorney.

Follow Alexis Keenan on Twitter @alexiskweed.

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