telecommunications

Sprint allowed to pursue legal challenge to AT&T-T-Mobile deal

Posted 11/3/11

WASHINGTON - Sprint Nextel Corp. can sue AT&T Inc. over its proposed purchase of T-Mobile USA Inc., a federal judge ruled, saying the fact that the companies are competitors doesn’t bar a private antitrust lawsuit.

U.S. District Judge Ellen Segal Huvelle in Washington said Wednesday that the suit by Sprint, and another by Cellular South Inc. to block the $39 billion deal, can proceed. Still, the judge dismissed several claims, limiting the cases to Sprint’s allegations regarding access to mobile devices and Cellular South’s complaints involving roaming fees as well as devices.

“Where private plaintiffs have successfully pleaded antitrust injury, the fact that they are defendants’ competitors is no bar,” Huvelle said in her ruling.

Sprint and Cellular South will now be able to “supplement” the Justice Department’s lawsuit to stop the deal, Andrew Gavil, a law professor at Howard University in Washington, said in an email. While the government will try to prove how the merger would harm consumers, the companies will attack the way the transaction might diminish competition in the wireless telephone industry, he said.

‘Important Victory’

“It is an important victory for Sprint and Cellular South,” Gavil said.

AT&T argued that Overland Park, Kan.-based Sprint can’t challenge the purchase under antitrust law because it’s a competitor rather than a consumer. It also contended that Sprint’s claims that the acquisition would hurt its business are unfounded.

Cellular South Inc., based in Ridgeland, Miss., filed a similar lawsuit that AT&T also asked Huvelle to dismiss. The company changed its name to C Spire in September.

Huvelle, scheduling a hearing on the cases for Dec. 9, did side with AT&T on several issues.

She ruled that Sprint didn’t provide enough evidence to go ahead on its claims that the transaction would raise prices on network development costs and restrict its access to services including roaming.

Sprint also lost its argument for a trial on claims that AT&T could hurt the company by raising prices for its access to backhaul, the circuits that allow cell-phone calls to be routed along land-line networks. Wireless companies try to switch their calls to land-line networks to lower the calls’ cost.

‘Limited Minor Claims’

“We believe the limited, minor claims they have left are entirely without merit,” Wayne Watts, AT&T’s senior executive vice president and general counsel, said in an emailed statement.

Sprint and Cellular South issued statements saying they were “pleased” that the judge allowed them to “continue fighting” the proposed merger.

Gina Talamona, a Justice Department spokeswoman, declined to comment.

Sprint’s attorney, Steven Sunshine, told Huvelle at an Oct. 24 hearing that the merger would increase AT&T’s market power to secure deals for exclusive handsets.

In her ruling, Huvelle noted that Sprint had to compete for almost five years without access to the iPhone as an example of why it could face anticompetitive injury.

“That AT&T and Verizon thus wielded their purchasing power in the past substantiated Sprint’s claim to threatened injury- in-fact from the merger,” Huvelle said.

‘Even More Plausible’

The judge said Cellular South’s antitrust injury on devices was “even more plausible” because it added “narrative to the numbers and market logic alleged by Sprint.” Huvelle cited Cellular South’s court filing that claimed the company had been refused access to current devices and that it and other carriers receive older phones at higher prices.

Referencing the issues central to earlier antitrust decisions, Huvelle said “mobile wireless devices, and smartphones in particular, are Sprint’s and Cellular South’s first-run movies, mall locations suitable for department stores, and shelf space and promotional time, for they are necessary inputs for plaintiffs’ businesses.”

The combination of AT&T, the second-biggest mobile phone provider, and Bonn-based Deutsche Telekom AG’s T-Mobile unit would form the country’s largest wireless phone company, passing the current market leader Verizon Communications Inc. Sprint has lost money for 16 consecutive quarters.

The Justice Department sued AT&T and T-Mobile Aug. 31, saying a combination of the two companies would “substantially” reduce competition. Seven states and Puerto Rico joined the effort to block the deal, which would make AT&T the biggest U.S. wireless carrier.

Huvelle ruled Oct. 24 that the government can’t give Sprint open access to data it collected from AT&T in its probe of the T-Mobile deal. Huvelle will let the department, which said Sprint’s knowledge of the wireless market could help its lawsuit, ask court permission to share material with Sprint on a case-by-case basis.

The government’s case is U.S. v. AT&T Inc., 11-01560; Sprint’s case is Sprint Nextel Corp. v. AT&T Inc., 11-01600; and Cellular South’s case is Cellular South Inc. v. AT&T Inc., 11- 01690, U.S. District Court, District of Columbia (Washington).

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