Sprint and T-Mobile merger faces new legal challenge from multiple states

Sprint T-Mobile merger

Sprint Corporation (NYSE: S) and T-Mobile US (NASDAQ: TMUS) are facing a new hurdle to their proposed $26.5 billion merger.

On Tuesday, California Attorney General Xavier Becerra and New York Attorney General Letitia James announced that they are leading a multi-state lawsuit to block the Sprint and T-Mobile merger.

The states of Connecticut, Colorado, Maryland, Michigan, Mississippi, Virginia, Wisconsin and the District of Columbia are part of the lawsuit.

In the lawsuit, the states argued that the proposed Sprint and T-Mobile merger will reduce competition, which is harmful to consumers— particularly prepaid or low-income subscribers.

States believe the merger will be harmful to low-income subscribers

“The harms faced by low-income subscribers using prepaid service will be particularly pronounced because many low-income subscribers use their mobile handsets as their primary – or even only – means of connecting to the Internet, and the fees paid for mobile wireless telecommunications services are among the highest monthly expenses in many low-income households,” the states said in the complaint.

Additionally, the states argued that the merger between the two mobile network operators is part of a long-term plan to increase profits by lessening competition.

T-Mobile’s parent company, Deutsche Telekom AG (OTCMKTS: DTEGY) believes that it will increase its profitability by reducing the number of mobile network operators in the United States.

Sprint and T-Mobile merger will lead to higher prices and fewer choices for consumers 

In a statement, Becerra said, “Although T-Mobile and Sprint may be promising faster, better, and cheaper service with this merger, the evidence weighs against it. This merger would hurt the most vulnerable Californians and result in a compressed market with fewer choices and higher prices.”

On the other hand, James said, “When it comes to corporate power, bigger isn’t always better. The T-Mobile and Sprint merger would not only cause irreparable harm to mobile subscribers nationwide by cutting access to affordable, reliable wireless service for millions of Americans, but would particularly affect lower-income and minority communities here in New York and in urban areas across the country.”

In addition, the New York Attorney General said they are suing to stop the deal, which she described as consumer-harming, job-killing megamerger.”