T-Mobile is closer to taking over Sprint after a federal judge rejected arguments by several states that the merger would stifle competition and lead to higher prices for consumers.
The deal would combine the country's third- and fourth-largest wireless carriers. The new company, to be called T-Mobile, would still be the third-largest, after AT&T and Verizon.
U.S. District Court Judge Victor Marrero concluded that the proposed merger "is not reasonably likely to substantially lessen competition" in the wireless market.
In his ruling Tuesday, Marrero said he was persuaded not to presume anticompetitive effects, as T-Mobile "has redefined itself over the past decade as a maverick that has spurred the two largest players in its industry to make numerous pro-consumer changes." He said that Sprint, meanwhile, "is falling farther and farther short of the targets it must hit to remain relevant." Marrero was not convinced that Sprint is likely to survive as a major competitor.
The case was brought by the attorneys general of New York, California, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Oregon, Pennsylvania, Wisconsin and the District of Columbia.
The Justice Department has already approved the deal, which was valued at $26.5 billion when the merger was announced in 2018. The merger remains subject to closing conditions and the possibility of further court proceedings.
New York Attorney General Letitia James said the states are considering an appeal.
"From the start, this merger has been about massive corporate profits over all else, and despite the companies' false claims, this deal will endanger wireless subscribers where it hurts most: their wallets," James said in a statement. "There is no doubt that reducing the mobile market from four to three will be bad for consumers, bad for workers, and bad for innovation, which is why the states stepped up and led this lawsuit."
Part of the agreement is the combined company would help establish Dish Network as a fourth major wireless company. Sprint's prepaid customers would be moved to Dish, while most of Sprint's other customers would have plans through T-Mobile.
"[N]ow we are FINALLY able to focus on the last steps to get this merger done!" T-Mobile CEO John Legere said in a statement. "We want to thank the Court for its thorough review of the facts we presented in our case. We've said it all along: the New T-Mobile will be a supercharged Un-carrier that is great for consumers and great for competition."
Shares of both Sprint and T-Mobile rose early Tuesday on news of the ruling.
AUDIE CORNISH, HOST:
A federal judge ruled today in favor of T-Mobile's takeover of rival telecom Sprint. The $26 billion merger would combine the country's third and fourth largest wireless carriers. So what will this mean for consumers? Here's NPR's Laura Wamsley.
LAURA WAMSLEY, BYLINE: The court rejected arguments by attorneys general from 13 states and the District of Columbia. The states had argued that if the merger is permitted, it will stifle competition and lead to higher prices for consumers. But U.S. District Court Judge Victor Marrero was persuaded by T-Mobile and Sprint that that won't happen. That's in part because of the maverick role that T-Mobile has played in the last decade, pressuring AT&T and Verizon with its lower pricing and unlimited data plans. The judge also said the cellphone business is unusually dynamic, pointing to the brick phones that quickly gave way to flip phones.
If the merger goes through, the new T-Mobile would be nearly the same size as Verizon and AT&T, creating a market with three mobile giants. Craig Moffett, senior analyst at MoffettNathanson Research, says that this might be the rare merger that isn't bad for consumers.
CRAIG MOFFETT: In this case, the judge was persuaded that prices will probably come down for consumers by having a stronger third competitor.
WAMSLEY: In order to get justice department approval, T-Mobile and Sprint agreed to help prop up Dish Network, the satellite TV company, so it could become a viable fourth-place mobile provider.
MOFFETT: The problem with that argument, obviously, is if Sprint wasn't capable of playing that role with a network that's already built, how is it that Dish Network, with an even weaker balance sheet and an even more rapidly declining business, is going to play that same role with a network that they haven't even broken ground on yet?
WAMSLEY: If the deal goes through, the bulk of Sprint's customers will become T-Mobile customers. Sprint's prepaid customers will become part of Dish Network if they decide to. Gigi Sohn is a fellow at Georgetown Law, and she says that T-Mobile merging with its biggest competitor won't be good for consumers.
GIGI SOHN: There used to be eight mobile wireless carriers, so the market's already greatly consolidated. But there is a great deal of evidence that when you go from four to three, the three tend to act in concert to raise prices.
WAMSLEY: T-Mobile has agreed not to raise prices for three years following a merger, but there's no guarantee prices won't rise after that. And the deal isn't quite done yet. New York's attorney general says the states are considering an appeal in the case. Laura Wamsley, NPR News.
(SOUNDBITE OF LADY GAGA SONG, "TELEPHONE") Transcript provided by NPR, Copyright NPR.