By Diane Bartz and David Shepardson
WASHINGTON (Reuters) - Ten states led by New York and California filed a lawsuit on Tuesday to stop T-Mobile US Inc's $26 billion purchase of Sprint Corp, warning that consumer prices will jump due to reduced competition.
The complaint comes as the U.S. Justice Department is close to making a final decision on the merger, which would reduce the number of nationwide wireless carriers to three from four.
The all-Democratic attorneys general from the 10 states, including Colorado, Connecticut, the District of Columbia, Maryland, Michigan, Mississippi, Virginia and Wisconsin, say the reduced competition would cost Sprint and T-Mobile subscribers more than $4.5 billion annually, according to the complaint.
"When it comes to corporate power, bigger is not always better," New York Attorney General Letitia James said at a news conference.
"To many upstate New Yorkers, (the carriers) still struggle with 3G," she said, adding that there is nothing in the merger that will guarantee more towers and coverage for certain communities.
James said the lawsuit was not filed to influence the Justice Department's decision on the merger, adding that negotiations were ongoing among the states, the Justice Department and the carriers.
James also said her office did not notify Justice before the states filed the lawsuit, adding it was not required for them to do so. State attorneys general often participate in lawsuits aimed at stopping mergers but rarely go it alone.
The complaint was filed in the U.S. District Court for the Southern (NYSE:) District of New York.
"This is the third time T-Mobile has tried to merge and shrink the market to three players," said California Attorney General Xavier Becerra.
"Every time they’ve tried they’ve been blocked or forced to walk away because of opposition from the government… Opposition that’s based on the same concerns laid out in our lawsuit today."
T-Mobile, whose parent company is Deutsche Telekom AG (DE:), and Sprint, controlled by Japan's SoftBank Group Ltd, did not comment. A spokeswoman for Federal Communications Commission Chairman Ajit Pai declined to comment. The Justice Department did not respond to a request for comment.
Shares of Sprint dropped 6.2% to $6.56 while T-Mobile was down 1.4% at $75.28.
WAITING ON DOJ
The T-Mobile/Sprint deal has won the backing of a majority of the FCC. The U.S. Justice Department's antitrust division staff has recommended the agency block the deal, but no final decision has been made.
Calling the proposed merger "anti-competitive, anti-worker and anti-consumer," Connecticut Senator Richard Blumenthal said the Justice Department "must follow the leadership of State AGs" who are fighting back for consumers.
"Saying no to this deal should be easy," Blumenthal said in a tweet.
While AT&T (NYSE:) and Verizon (NYSE:) dominate the overall U.S. wireless market, T-Mobile is the most popular among customers who make less than $75,000 per year, and Sprint's Boost Mobile prepaid brand counts 83 percent of its users in that income range, according to Kagan, S&P Global (NYSE:) Market Intelligence data.
As part of their push to win regulatory approval, T-Mobile and Sprint have pledged not to raise rates for three years.
The companies have also offered to sell Boost to reduce the combined company's market share in the prepaid business. They have also indicated they were considering divesting wireless spectrum.
The states' complaint also said that divesting Boost would not resolve competitive concerns since Boost would be dependent on another carrier to provide network access, meaning that it is not independent.
The two companies have been in regular contact with regulators as they lobby for approval. Sprint Chief Executive Officer Marcelo Claure and John Legere, his counterpart at T-Mobile, met with Justice Department officials on Monday, according to a source familiar with the matter.
If the states' lawsuit goes forward, the courts would have the last say, not the Justice Department, Blair Levin, an analyst with New Street Research, said in a note on Tuesday.
The next two big steps will be determining the position of Makan Delrahim, head of the Justice Department's antitrust division, and the identity of the judge assigned to the states' lawsuit, Levin wrote.