Sprint CMO Hypothesized About Price Increases During 2017 Deal Talks

Judge Victor Marrero dispensed with opening statements. T-Mobile CEO John Legere, there to see the opening, then left. Marrero also asked parties to trim the number of witnesses. “Sprint may be doing badly, but I don't need six witnesses to explain why,” the judge said. The trial could end Dec. 20 or 23, he said.

States opened with their witnesses and expected to get through them by end of Wednesday, said Munger Tolles' Glenn Pomerantz. That would allow T-Mobile to start its side late Wednesday or Thursday morning with Legere testifying, said Pomerantz.

States unearthed a conversation between Sole and Claure during 2017 deal talks in which Sole suggested that one argument to get Deutsche Telekom to pay more for T-Mobile was a synergy not captured for "reg reasons," meaning regulatory. That was a possible $5-a-month price increase in five years, he said. Sole then told Claure AT&T and Verizon would benefit by doing similar hikes in the more consolidated market.

Claure never asked for Sole's input on the deal, terms or regulatory strategy, and he didn't participate in the talks, the CMO said in reply to the defendants' attorney. The CEO didn't reply to Sole's message, which he said he wrote while boarding an airplane, he said. "I was on a plane with nothing else to do." He stressed it was “hypothetical” and chose $5 because it sounded like a good number.

States grilled Sole on "Project Samurai," a 2015-17 promotion the company claimed was the “biggest offer in U.S. wireless history,” to slash rivals' prices 50 percent. Munger Tolles' Kuruvilla Olasa showed a letter from Sprint's competitive intelligence unit saying T-Mobile felt "competitive pressure” and responded with a similar Metro prepaid offer. Then when Sprint in April 2017 launched an unlimited plan, T-Mobile announced a similar plan that day. The Sprint unlimited plan had been in trial for months, and Sole said he assumed T-Mobile “copied” the offer, and told staff that on WhatsApp, he said.

Sole downplayed Samurai’s success, saying it was successful for only a couple of months at a time over 16 months, and the company found the number of interested price-sensitive customers was limited. But Olasa noted Sole called it successful in a news release, and stressed that Sprint extended the limited-time offer multiple times. After Sprint's unlimited plan, all four carriers followed with responding plans or enhancements to one-up each other, the states' lawyer showed through exhibits.

Network Perception

Marrero asked how Sprint knows it has poor network perception from customers, outside of churn. Sole said its net promoter score is 12 compared with Verizon’s 50, and network technicians see problems like dropped calls and speed hiccups on Sprint.

Boost will benefit from riding T-Mobile’s network, said the prepaid plan's Senior Vice President Angela Rittgers. Sprint network quality is “definitely our biggest struggle," so moving to the new T-Mobile's network will help on day one, she said. Giving Dish Network three years to prepare its network for Boost customers is “a really good runway,” and Rittgers sees no reason Dish can’t succeed. Boost’s viability doesn’t depend on Sprint, said Rittgers, answering Marrero’s question. Dish will get some divested assets.

New York AG Antitrust Assistant Bureau Chief Elinor Hoffmann peppered Rittgers with questions about whether she knew any details about Dish's network or how it will make 5G devices available at low prices to Boost customers. Rittgers couldn’t provide many details but said 5G device prices should come down significantly in 2020. States showed Rittgers multiple examples of Boost matching Metro by T-Mobile offers. She stressed, “We watch everyone’s moves.” Rittgers agreed with the plaintiffs that many prepaid mobile virtual network operator (MVNOs) are branded parts of top carriers but under defendant questioning said one of Boost's strongest rival is Straight Talk Wireless by TracFone.

T-Mobile made vast improvements to its network and customer perception since 2011, when Deutsche Telekom was looking for a way out, DT CEO Timotheus Hottges testified. After the AT&T acquisition failed, the company used the breakup fee to invest in its network, he said. States' Pomerantz pressed Hottges to say the carrier did that without combining with another top carrier.

The DT CEO said its acquiring MetroPCS was critical to getting more spectrum. Hottges agreed with Pomerantz the carrier increased revenue and subscribers, but it hasn't satisfactorily returned profits to shareholders.

Marrero cut short the trial at a little after 3 p.m. Hottges will finish testifying Tuesday.

Reactions

The text exchange between Sole and Claure “helps establish the states’ prima facie case," emailed New Street Research analyst Vivek Stalam to us after Monday's courtroom proceedings. "But obviously, [it] does not contemplate the DISH remedy, which I think will be the more interesting topic of debate.”

"Bipartisan leaders in Congress, the FCC, the DOJ, and State AGs from both parties want stronger wireless competition and accelerated 5G builds," tweeted Commissioner Brendan Carr, an FCC Republican. "A small and partisan group led by New York and California are working to block this progress based on a 3G view of competition."

Former FCC Commissioners Mignon Clyburn and Robert McDowell, now advising T-Mobile, made statements praising the deal.

"We’re very confident that the law is on our side," said California AG Xavier Becerra (D) in a call before the trial, per a transcript. "Even small increases in price or decreases in service would have significant long-term impact: the trend of reduced prices for greater amounts of connectivity and data will come to an end."