Sprint, Cellular South Score Partial Wins in Antitrust Suit Ruling

By Wayne Rash  |  Posted 2011-11-03

Sprint, Cellular South Score Partial Wins in Antitrust Suit Ruling

U.S. District Court Judge Ellen Huvelle has handed AT&T a defeat in its quest to prevent the antitrust suits filed by Sprint and Cellular South seeking to prevent the proposed merger of AT&T and T-Mobile.

AT&T had filed motions to dismiss the suits by both companies on the grounds that they didn't have standing to sue because the companies are competitors of AT&T. "But where private plaintiffs have successfully pleaded antitrust injury, the fact that they are defendants' competitors is no bar," Judge Huvelle said in her conclusion to the 44-page decision.

As you would imagine, Sprint and Cellular South (which is now calling itself C Spire Wireless, but is referred to by its original name in the antitrust litigation) hailed the decision as a victory for their side. "By allowing Sprint and C Spire Wireless to move forward with these lawsuits, the Court has ensured we receive a fair hearing," Sprint's vice president for litigation Susan Haller said in a prepared statement.

"Along with the Justice Department and a bi-partisan group of Attorneys General from seven states and Puerto Rico, Sprint has concluded that the transaction would give AT&T the ability to raise prices, thwart competition, stymie innovation, diminish service quality and stifle choice for millions of American consumers. We are pleased that the Court has given us the chance to continue fighting to preserve competition on behalf of consumers and the wireless industry."

Cellular South also welcomed the decision. "The Court's ruling today will ensure that all parties harmed by AT&T's proposed takeover of T-Mobile will have the benefit of a fair hearing," said the company's vice president for strategic and government relations, Eric Graham. "C Spire is pleased that it will have the opportunity to continue its fight for American consumers and for the principles of competition and innovation that should drive the wireless industry."

Judge Huvelle denied AT&T's motions with regard to the proposed acquisitions' effects on the market for mobile wireless devices. In addition, the judge denied AT&T's motion to dismiss Cellular South's complaint in regards to roaming as it applies to the portion of its Corr Wireless subsidiary that uses GSM roaming. These rulings mean that AT&T can't prevent the antitrust suit by Sprint and Cellular South from going forward,

However, neither of the companies got everything they wanted. In one set of claims, Sprint and Cellular South said that the merger would raise prices for backhaul services because T-Mobile would no longer be one of the customers needing such services. They also noted that AT&T has stated that it would be providing backhaul for former T-Mobile cell sites, instead of the third-parties that previously had provided about 20 percent of T-Mobile's backhaul.

The judge noted that this wouldn't really change anything from the current situation, because T-Mobile wasn't providing backhaul services. Backhaul services are the landlines that provide the link between a cell site and the public telephone network. They are a necessary part of the wireless network, and currently nearly all backhaul services are provided either by AT&T or Verizon.

Roaming Agreements Remain an Issue in Antitrust Suits

However, both Sprint and Cellular South claimed that the concentration of the market post-merger would prevent the companies from having access to the latest and most desirable handsets and that in turn would make the market anti-competitive. Judge Huvelle noted that AT&T's arrangement with Apple for exclusive access to the iPhone prevented Sprint and Cellular South from selling this product for nearly five years.

Because AT&T had demonstrated that it was able to make such an exclusive arrangement in the first place and to keep it in place for so long made it clear that Sprint and Cellular South had a valid complaint. As a result the court upheld the ability of both companies to pursue an antitrust suit on this basis.

Both companies also included the cost of roaming in their antitrust complaint against AT&T. Here the court noted that while it was possible that the merger could result in higher roaming charges for Sprint, the court also noted that Sprint's technology means that its phones can't roam on AT&T's network in any case. However, the part of Cellular South that uses GSM technology would have no choice but to roam on AT&T's network, since post-merger that would be the only nationwide carrier available.

In its complaint, Cellular South noted that AT&T had demonstrated that it was unwilling to allow roaming agreements at all or when AT&T was willing to allow roaming agreements it made them so expensive that it made roaming impractical. Cellular South noted that this practice was in violation of the FCC's requirement that carriers negotiate roaming agreements and that they do so at a reasonable price. The court agreed that AT&T had apparently failed to act in good faith and as a result allowed roaming agreements to be included in Cellular South's antitrust suit.

Judge Huvelle's decision is based in large part on the assumption that AT&T's proposed acquisition of T-Mobile would violate section 7 of the Clayton Act. This does not, however, mean that the judge is making the decision that AT&T is in fact in violation of antitrust laws. The assumption is made because it's necessary for the inquiry to proceed. The actual decision on whether AT&T's purchase of T-Mobile would violate antitrust laws will be made following the trial that starts in February.

However, the outcome of this hearing does have important consequences for AT&T. First, it means that the company will have to fight three antitrust suits instead of one. Second it shows that the judge isn't taking sides; this decision gave something to each side in the case, but ultimately allowed the private antitrust suits to go forward.

What this ultimately means is that even if political pressure on the Justice Department induces the government to drop its case against AT&T (which is unlikely at this point, but could happen if the trial drags out past the 2012 presidential election and the Republicans win), the Sprint and Cellular South antitrust suit will survive and the merger could still be prevented if the decision goes against AT&T. 

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