The United States government approved the T-Mobile/Sprint merger without fully investigating whether the deal's anti-competitive harms can be offset by merger conditions, state attorneys general argued in a court filing.

The US Department of Justice and Federal Communications Commission both found that the merger would harm consumers, a group of states that are trying to block the merger pointed out in a court filing last week. The DOJ and FCC approved the deal with conditions they claim will make the merger good for consumers, but the states say both US agencies failed to properly evaluate whether the conditions are likely to achieve that goal.

The US approved the merger on the conditions that the merging companies deploy 5G nationwide and sell spectrum licenses and other assets to Dish Network to help Dish create a new mobile service. With states having sued the companies to block the merger, the DOJ and FCC last month urged the court to reject the lawsuit and trust the federal government's conclusions.

“I don’t think I’m smart enough”

But the states argue that the federal government hasn't earned such trust. They pointed out that in November 2017, DOJ antitrust chief Makan Delrahim said in a speech that "I don't think I'm smart enough" to design behavioral remedies "that distort competitive incentives just enough to undo the damage done by a merger, for years to come."

Yet that's exactly what the DOJ did in this case, the states wrote in their new court filing. "It is unclear what has changed" since that Delrahim speech, the states' filing said.

The DOJ and FCC didn't do enough research to overcome Delrahim's skepticism of merger conditions, the states argued:

DOJ conducted an initial investigation of the proposed merger in cooperation with the Plaintiff States, and concluded that the merger "would substantially lessen competition and harm consumers." Yet DOJ then agreed to the merger subject to certain conditions, without the benefit of formal discovery on whether, when, and under what circumstances the merging companies and Dish might fulfill those conditions. Similarly, the FCC recognized that the merger would likely lead to significant price increases, and it approved the merger only subject to conditions. The FCC has not, however, approved conditions related to Dish or license transfers as called for by the DOJ settlement; some of those conditions remain pending and some have not even been formally proposed. Moreover, the FCC has not undertaken the sort of extensive investigation of the likelihood that the merging companies and Dish will fulfill the merger-approval conditions that the Plaintiff States have undertaken.

There's ample reason to believe that Dish won't fully replace the competition provided today by Sprint, the fourth-largest US carrier, the states argued.

"[O]nly a small fraction of the merged company's assets will be sold to Dish; Dish has no experience in the wireless market and a history of broken promises; and Dish will be dependent on the new T-Mobile's network and will lack the scale needed for long-term success as a national wireless provider," they wrote.

While the US government "agreed to the merger based on conditions it had not thoroughly investigated and with incomplete information," the states "conducted a far deeper investigation of the proposed merger remedies in this litigation, including extensive document discovery, sworn testimony, and expert economic analyses," the states' filing said. The states conducted "an intensive 15-month investigation" into the merger, they wrote.

"For example, the Plaintiff States procured additional documents from Deutsche Telekom, the controlling shareholder of both current T-Mobile and the potential new T-Mobile; deposed three Deutsche Telekom executives; and examined two of those executives at trial, including CEO Timotheus Höttges, who acknowledged under oath that reducing price competition was one of the reasons for the T-Mobile-Sprint merger," the filing said.

The merger is being challenged by New York, California, Connecticut, the District of Columbia, Hawaii, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Oregon, Pennsylvania, Virginia, and Wisconsin. They sued the merging companies in US District Court for the Southern District of New York. Testimony in the trial ended last month. Closing arguments are scheduled for Wednesday this week.

Sides await court ruling

The DOJ/FCC brief that the states were responding to argued that the court should defer to the federal agencies' expertise because they examine the market from a nationwide level rather than from a state-by-state perspective.

"Both the Antitrust Division and the FCC have significant experience and expertise in analyzing these types of transactions and do so from a nationwide perspective," the federal agencies wrote. "Thus, their conclusions that the merger as remedied is in the public interest deserve appropriate weight in this remedy inquiry by this honorable court."

In response, the states pointed out that they represent more than 40 percent of the US population and that "[t]here is no serious option of providing relief on a less-than-nationwide basis." The state attorneys general wrote that blocking the merger "is the only relief that will protect the public interest."

"Plaintiffs demonstrated at trial that the merger at issue would have dramatic anticompetitive effects, and that those effects would not be offset by the federal government's merger-approval conditions," they wrote. "Those facts require that the merger be enjoined under the Clayton Act."

Also last week, the plaintiff states submitted their proposed findings of facts, and T-Mobile and Sprint did the same.

There's also a Tunney Act review of the merger in which US District Judge Timothy Kelly is accepting friend-of-the-court briefs until January 24, and giving parties in the case until February 7 to file responses, FierceWireless reported.