WASHINGTON (Reuters) – T-Mobile US Inc won U.S. antitrust approval for its $26 billion takeover of rival Sprint Corp, the Justice Department said on Friday, clearing a major hurdle to a deal that would merge the nation’s third and fourth largest wireless carriers.
The companies have agreed to divest Sprint’s prepaid businesses including Boost Mobile to satellite television firm Dish Network Corp to move ahead with the merger. Dish will be the fourth largest U.S. wireless carrier if the deal goes through.
T-Mobile Chief Executive Officer John Legere, who will be the CEO of the combined company, said the proposed transaction would deliver a 5G network with lower prices, better quality and thousands of jobs, while unlocking $43 billion in synergies.
Assistant Attorney General Makan Delrahim, head of the Justice Department’s antitrust division, said the deal would hasten the development of 5G, the next generation of wireless.
“With this merger and accompanying divestiture, we are expanding output significantly by ensuring that large amounts of currently unused or underused spectrum are made available to American consumers in the form of high quality 5G networks,” Delrahim said.
Shares of T-Mobile, which is about 63 percent owned by Deutsche Telekom AG, were up 4.7% at $83.69. Shares of Sprint, which is about 84 percent owned by Softbank Group Corp, rose 5.3% to $7.83. Dish was up 1.5% at $39.76.
But the deal still faces a significant challenge. A group of U.S. state attorneys general filed a lawsuit in federal court in New York to block the merger on antitrust grounds, arguing that the proposed deal would cost consumers more than $4.5 billion annually.
New York State Attorney General Letitia James indicated the lawsuit would continue, at least in part because of what critics see as Dish’s failure to live up to pledges it had made.
“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,” she said.
California’s Attorney General Xavier Becerra, who is co-lead with New York in the states’ lawsuit, agreed. “We intend to be prepared to go to trial to fight for a fair, competitive, and equitable marketplace for consumers nationwide,” he said in a statement.
The Justice Department, backed by five state attorneys general, said the deal required the merging companies to also sell Virgin Mobile and Sprint’s prepaid business and provide Dish with access to 20,000 cell sites and hundreds of retail locations.
Dish has agreed to acquire spectrum, or airwaves that carry data, in a deal valued at $3.6 billion from the merged firm and pay $1.4 billion for Sprint’s prepaid business that serves about 9.3 million customers. Dish will get access to the combined firm’s network for seven years while it builds out its own 5G network.
Prepaid wireless phones are generally sought by lower-income people who cannot pass a credit check.
T-Mobile, the third largest U.S. wireless carrier with about 80 million customers, pursued the deal in order to seek scale to compete with bigger rivals Verizon Communications Inc and AT&T Inc. Sprint has about 55 million customers.
U.S. telecoms customers tend to stick with one carrier for years, providing companies with a steady, predictable stream of cash. As more people rely on cell phones for social media, banking or news and entertainment, the lines have blurred between telecom, content and cable companies, just as so-called 5G technology promises to make mobile phones even more powerful.
T-Mobile US reported on Thursday that it beat analysts’ estimates for second-quarter net new phone subscribers who pay a monthly bill. The carrier said it added a net 710,000 phone subscribers in the three months ended June 30.
Federal Communications Commission Chairman Ajit Pai has given his blessing to the merger in principle and said in a statement on Friday he would soon circulate a formal order.
The FCC is expected to give Dish more time to use spectrum it previously acquired but also impose strict penalties if it fails to create a consumer wireless network within a set timeframe.
Dish has spent years stockpiling wireless spectrum and faced a looming March 2020 deadline to build a product using the spectrum in order to fulfill its license requirements.
Skeptics of the deal worked out by the Justice Department, Sprint and T-Mobile include Senators Mike Lee, a Republican, and Amy Klobuchar, a Democrat. They are the top lawmakers on the Senate Judiciary Committee’s antitrust subcommittee.
Lee said he was hopeful the divestiture would succeed but said he was uneasy about Dish’s dual role as a critic of the transaction and a buyer of divested assets. “I have concerns whenever government joins hands with industry to cobble together a would-be competitor, particularly one who so stridently opposed the merger earlier this year,” he said in a statement.
Klobuchar, who is running for president, reiterated that she had wanted the government to block the merger. “It looked like a bad deal then, and it looks like a bad deal today, despite the parties’ promises and this proposed consent decree,” she said.
Consumer advocacy groups like Public Citizen criticized the Justice Department sharply for declining to block the merger. “Prices will rise, service will suffer, and it is pure speculation to assert that this will benefit 5G,” the group said in a statement.
Reporting by Diane Bartz and David Shepardson; Additional reporting by Nick Zieminski in New York; Editing by Paul Simao