United States v. Deutsche Telekom AG
| Decision Date | 14 April 2020 |
| Docket Number | Civil Action No. 19-2232 (TJK) |
| Parties | UNITED STATES OF AMERICA et al., Plaintiffs, v. DEUTSCHE TELEKOM AG et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
Defendants T-Mobile and Sprint, the third and fourth largest mobile wireless carriers in the country, agreed to merge their businesses into a single entity called New T-Mobile. ECF No. 50 ("Fifth Amended Complaint" or "FAC") ¶¶ 4-5, 11. But the Department of Justice and several states sued to block the merger, alleging that it would hurt competition in the domestic retail mobile wireless market by leaving only three national facilities-based carriers. See generally id. The parties reached agreement on remedies that they argue would permit the merger to happen without potentially harming competition, and the United States moved for entry of final judgment under the Tunney Act. For the reasons explained below, the Court granted the motion and entered their proposed final judgment.
Mobile wireless carriers sell a service that allows cell phones and other internet-enabled mobile devices, like tablets and smart watches, to have mobile, wireless access to the internet. See FAC ¶ 12. They do so by building network infrastructure—such as cell sites and radio transmitters and receivers—across a large geographic footprint so that mobile devices on their networks can transmit and receive signals over certain frequencies of spectrum. Id. ¶ 13. Mobile wireless carriers must obtain licenses for this spectrum from the Federal Communication Commission (FCC). Id.; see also Sprint Nextel Corp. v. AT&T Inc., 821 F. Supp. 2d 308, 328 (D.D.C. 2011). The need for both extensive network infrastructure and scarce spectrum makes it hard for new carriers to enter the market. See ECF No. 20 ("Competitive Impact Statement" or "CIS") at 7.
The country has four facilities-based mobile wireless carriers that offer nationwide service: Verizon Communications, Inc., AT&T Inc., T-Mobile US, Inc. ("T-Mobile"), and Sprint Corporation ("Sprint"). FAC ¶¶ 3-4; CIS at 5-6. Other carriers, called mobile virtual network operators ("MVNOs"), also exist, but they do not operate their own wireless networks and facilities. MVNOs offer cell service to consumers in much the same way mobile wireless carriers do, but they must first buy network capacity from one of the four facilities-based carriers. FAC ¶ 13. In this way, MVNOs effectively act as wholesale buyers of wireless service, which they then resell as retailers. See id.
Mobile wireless carriers, whether facilities-based or MVNOs, offer two types of retail service plans: postpaid and prepaid. About 30% of retail customers purchase prepaid plans. Id. ¶ 18. Prepaid customers "tend to be even more value conscious, on average, than postpaid subscribers," and include customers who may not have ready access to credit. Id. ¶¶ 4, 18. T-Mobile sells postpaid services under the T-Mobile brand and prepaid services mainly under its Metro by T-Mobile brand; Sprint likewise sells postpaid services under its Sprint brand and prepaid services primarily under its Boost Mobile and Virgin Mobile brands. Id. ¶¶ 8, 10.
In April 2018, Sprint and T-Mobile agreed to combine their businesses in an all-stock transaction. Id. ¶ 11. The merged firm, New T-Mobile, would be owned 42% by DeutscheTelekom AG ("Deutsche Telekom"), T-Mobile's controlling shareholder, and 27% by SoftBank Group Corp. ("Softbank"), Sprint's controlling shareholder. Id. ¶¶ 7, 9, 11.
New T-Mobile would account for "roughly one-third of the national retail mobile wireless service market," and the merger would reduce the number of facilities-based carriers from four to three. Id. ¶ 16. The United States argues that the merger would reduce competition in three ways. First, Sprint and T-Mobile are innovators in the wireless market that have driven down prices and improved the quality of offerings of their competitors, so after the merger, the market would lose some of this effect on the remaining competitors. See CIS at 7; FAC ¶¶ 5, 17, 21. Second, shrinking the market from four to three facilities-based wireless providers would make it more vulnerable to coordination on the part of the remaining market participants. CIS at 7; FAC ¶¶ 5, 21. And finally, head-to-head competition between Sprint and T-Mobile has led to noteworthy innovation in the MVNO market, which would be lost post-merger. CIS at 7; FAC ¶¶ 18-20, 22.
The United States and five states filed this action against Sprint, Softbank, Deutsche Telekom, and T-Mobile on July 26, 2019, alleging that the proposed merger violated Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18. ECF No. 1 ¶ 25. At the same time, the United States filed a proposed Final Judgment ("PFJ"), consented to by Defendants, that would settle the case. ECF Nos. 2, 2-2. Since then, the parties moved to amend the complaint five times, each time to add more states as plaintiffs. ECF Nos. 26, 33, 40, 43, 49. The operative Fifth Amended Complaint includes as plaintiffs the United States, Kansas, Nebraska, Ohio, Oklahoma, South Dakota, Louisiana, Florida, Colorado, Arkansas, and Texas.
The proposed Final Judgment places conditions on the merger that the United States argues would alleviate its anticompetitive effects. Primarily, the proposed Final Judgmentfacilitates the entry of a new wireless network provider—DISH Network Corp. ("DISH"). Because DISH's participation is vital to the success of the proposed Final Judgment, DISH has agreed to be bound by it as a party-defendant. ECF No. 2 ¶¶ 2-3; ECF No. 16 at 5. DISH, currently a satellite television provider, already controls substantial spectrum that would facilitate its entry into the retail mobile wireless market. See CIS at 2, 4. Under the proposed Final Judgment, New T-Mobile will divest to DISH almost all of Sprint's prepaid wireless business and certain spectrum licenses. The proposed Final Judgment will also provide DISH an exclusive option to acquire cell sites and retail stores decommissioned by New T-Mobile. Id. at 8-9. The divestiture of Sprint's prepaid businesses, including employees, customers, and intellectual property, will "provide an existing business" to DISH that will enable it to offer retail mobile wireless service. Id. at 9. Sprint and T-Mobile will also offer certain transition services to DISH that will ease its entry and prevent disruption for Sprint's existing prepaid customers. Id. at 10.
In return, the proposed Final Judgment requires DISH to offer nationwide postpaid retail wireless service within one year of the divestiture of the prepaid assets. Id. The ultimate goal of the proposed Final Judgment is for DISH to operate as a national facilities-based mobile wireless carrier, thereby ensuring that the number of these carriers remains the same. Id. at 2-3. Sprint and T-Mobile have made commitments to facilitate DISH's entry as a mobile wireless carrier, and DISH has promised to offer next-generation 5G service to 70% of Americans by June 14, 2023. Letter from Jeffrey H. Blum, S.V.P. for Public Policy & Government Affairs, DISH, to Donald Stockdale, Chief, Wireless Telecommunications Bureau, FCC (DISH) (July 26, 2019), https://www.fcc.gov/sites/default/files/dish-letter-07262019.pdf; see CIS at 11; PFJ at 23-24. Because building a national facilities-based network takes time, DISH will first enter the marketas a "Full MVNO"—an MVNO with some of its own facilities. See CIS at 5, 11. The proposed Final Judgment requires T-Mobile and Sprint to permit DISH to operate as a Full MVNO on New T-Mobile's network for at least seven years. Id. at 11. Finally, the proposed Final Judgment contains several reporting requirements and provisions preventing New T-Mobile from reacquiring the divested assets and providing for monitoring and enforcement of the final judgment. Id. at 13-17; PFJ at 24-34. The proposed Final Judgment will last for seven years, unless the United States and Defendants notify the Court after five years that it is no longer necessary or in the public interest. PFJ at 36.
In accordance with the Antitrust Procedures and Penalties Act (the "Tunney Act"), 15 U.S.C. § 16(b)-(h), shortly after it submitted the proposed Final Judgment, the United States filed a Competitive Impact Statement describing the alleged anticompetitive effects of the proposed merger and the remedial effects of the proposed Final Judgment; its conclusions are summarized above. As required by the Tunney Act, the United States published the initial complaint (which is identical to the FAC, except that the FAC includes additional plaintiff states), the CIS, and the proposed Final Judgment in the Federal Register on August 12, 2019, and opened a 60-day public comment period beginning that same day. ECF No. 41 at 1-2; see United States et al. v. Deutsche Telekom AG et al.; Proposed Final Judgment and Competitive Impact Statement, 84 Fed. Reg. 39,862 (Aug. 12, 2019). The parties also published a summary of the proposed Final Judgment in The Washington Post on August 3-9, 2019. ECF No. 41 at 1-2. Thirty-two comments were submitted. On November 6, 2019, the United States filed the comments, ECF Nos. 42-1, 42-2, 42-3, and its response, ECF No. 42, with the Court. Under 15 U.S.C. § 16(d), the Court excused publication of the comments and response in the Federal Register. The United States instead published the comments and response on the Department ofJustice's website and published a link to the comments in the Federal Register. See Minute Order of November 5, 2019. Having satisfied the procedural requirements of the Tunney Act, the United States moved for entry of the proposed Final Judgment under 15 U.S.C. § 16(e). ECF No. 44.
Under the Court's authority to structure Tunney Act proceedings, see 15 U.S.C. § 16(f), it also permitted interested parties to file...
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