Federal lawsuit alleges American consumers have paid billions more for wireless services after one of the most anti-competitive acquisitions in history reduced the number of U.S. retail mobile carriers from four to three and combined two fierce competitors into a single behemoth with no incentive to compete

On Friday, June 17, 2022, Lieff Cabraser Heimann & Bernstein, LLP, Berger Montague PC, Hausfeld LLP, and the Law Offices of Kenneth N. Flaxman P.C. filed a federal class action complaint against Deutsche Telekom, T-Mobile, and Softbank Group challenging the merger of T-Mobile and Sprint as a violation of the antitrust laws, specifically the Clayton Act and the Sherman Act. The case is brought on behalf of AT&T and Verizon subscribers.

The merger reduced the number of mobile carriers in the U.S. from four to three and eliminated vibrant competition from Sprint. It left the three remaining behemoths, the new T-Mobile, AT&T, and Verizon, in a far less competitive market and gave them the opportunity to charge more while delivering less. The case alleges that as a result, AT&T and Verizon retail customers have paid higher prices on a quality-adjusted basis.

“I’m hard-pressed to think of a more anti-competitive and damaging acquisition in recent history,” said Lieff Cabraser partner Brendan P. Glackin, who represents the plaintiffs in the lawsuit. “Mobile phones are now integral to American life, and the three carriers provide mobile wireless service to the vast majority of American subscribers. The consequences of the merger are currently being felt in the pocketbook of nearly every person living in this country and will continue to be felt until competition is restored and the ill effects of this merger are undone.”

The Complaint alleges that before the merger, “T-Mobile and Sprint were two scrappy upstarts” vying for subscribers by introducing price cuts and better plan terms. Pre-merger, Sprint frequently used “competitors’ prices as a starting point” and “targeted each of its three rivals by name and slashed prices accordingly.” T-Mobile similarly advertised itself as the “‘Un-carrier,’ introducing one competition-enhancing innovation after another.” As a result, “[r]ates for retail mobile wireless services declined across the market.”

The Complaint goes on to explain, however, that competing as an “Un-carrier” was “never the long-term plan of Deutsche Telekom,” T-Mobile’s corporate parent in Germany. DT tried for years to find a merger partner to consolidate the market and boost profits. According to the Complaint, when the merger finally closed, its CEO bragged “It’s harvest time.”

The case alleges further that the only apparent effects of the merger appear to be less competition and more consumer harm. Real world post-merger data cited in the Complaint confirms that after the merger, the competitive landscape shifted and consumers have less choice. After years of decline in consumer pricing for wireless services, since the merger quality-adjusted prices have gone up and introduction of competitive promotions has fallen.

“We seek recovery of overcharges our clients paid due to the merger, plus restoration of competition in one of the world’s largest and most concentrated markets,” said Berger Montague Chairman Eric L. Cramer, who also represents the plaintiffs. “We allege that every consumer and small business in the U.S. is paying the price for this anticompetitive merger, including our proposed class of AT&T and Verizon customers who, because of the merger, no longer face any pricing challenges from the former mavericks of the telecom space.”

This case follows an unsuccessful lawsuit filed by ten states to block the merger and a settlement with the United States Department of Justice. In both instances, T-Mobile made commitments to government regulators and the courts to continue to compete aggressively and at the same time help DISH emerge as a strong fourth competitor to replace Sprint. The Complaint alleges that neither promise was fulfilled.

“Courts cannot be expected to predict the future competitive impacts of proposed mergers with perfect precision. This suit alleges that the Sprint-T-Mobile merger is one example where judicial predictions of the merger’s effects did not align with real world outcomes,” said Gary I. Smith Jr., a Partner at Hausfeld LLP. “Private enforcement actions like this one serve an important function in remediating undesirable effects of a merger that should not have been, and restoring competitive balance moving forward.”

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New federal lawsuit alleges American consumers have paid billions more for wireless services after one of the most anti-competitive acquisitions in history