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‘Price Coordination’ Exacerbated

Chicago Judge Finds T-Mobile/Sprint Likely Reduced Wireless Competition

U.S. District Judge Thomas Durkin for Northern Illinois in Chicago granted SoftBank’s motion to dismiss a complaint for lack of jurisdiction and improper venue for its role in T-Mobile's 2020 Sprint buy. But the judge also denied the joint T-Mobile-SoftBank motion to dismiss the antitrust complaint for failure to state a claim, in his signed memorandum opinion and order Thursday (docket 1:22-cv-03189).

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In denying the T-Mobile-SoftBank motion to dismiss, the judge found that T-Mobile/Sprint likely “exacerbated the risk of price coordination” in the wireless market space, thereby reducing competition among all the carriers.

The case involves seven consumer plaintiffs who seek to vacate T-Mobile/Sprint on antitrust grounds (see 2212060052). The plaintiffs, all AT&T or Verizon customers, allege the anticompetitive nature of the T-Mobile/Sprint transaction caused their own wireless rates to soar. Except for July 20 oral argument on the motions to dismiss, the case has been dormant for months as the court has waited for co-defendant Deutsche Telekom to be properly served through diplomatic channels in Germany (see 2303240028).

The judge found that SoftBank transacts no business in the Northern District of Illinois, and so venue “is not proper” under Section 12 of the Clayton Act, said his order. The plaintiffs also haven’t alleged “suit-related conduct” that creates a substantial connection between SoftBank and Illinois that would have established the court’s personal jurisdiction over SoftBank, it said.

The plaintiffs focus on SoftBank’s role in executing the T-Mobile/Sprint merger agreement, said Durkin’s order. But the plaintiffs don’t allege that any part of SoftBank’s negotiation “or signature of the merger agreement” took place in Illinois, it said. The plaintiffs also don’t allege that any part of the merger agreement “specifically targeted Illinois consumers or pricing of mobile services in Illinois,” it said.

The plaintiffs instead assert that SoftBank “negotiated and signed a merger agreement that reduced competition and catalyzed price increases and store closures” in all 50 states, including Illinois, said Durkin’s order. But that link between SoftBank and Illinois “is attenuated, at best,” it said. Such a relationship necessarily depends on activities beyond SoftBank’s control, it said. The plaintiffs don’t allege that SoftBank “had any role in setting prices for T-Mobile customers in Illinois or in T-Mobile’s closure of 96 Sprint stores in Illinois,” it said.

T-Mobile and SoftBank moved for dismissal under Rule 12(b)(6) on the grounds the plaintiffs lack antitrust standing and fail to adequately allege direct or indirect evidence of anticompetitive effects, said Durkin’s order. T-Mobile and SoftBank also argue the plaintiffs aren’t the “proper” plaintiffs to bring this suit “because their alleged harm is too remote from the antitrust violation, there are more immediate victims, and the damages are impermissibly speculative,” it said.

T-Mobile and SoftBank argue that the plaintiffs can’t show a “direct causal link between the merger and the elevated prices that they allegedly paid” because they aren’t customers of the T-Mobile/Sprint “merging entities,” and because AT&T and Verizon “set their own prices,” said Durkin’s order. But “as a preliminary matter,” the idea that the plaintiffs can’t satisfy the “requisite causal link” because they aren’t customers of the merging entities “runs headlong” into the 7th Circuit’s 2003 decision in U.S. Gypsum v. Indiana Gas, it said.

AT&T and Verizon aren’t “fringe firms to the merged T-Mobile,” said Durkin’s order. “At the very least,” Gypsum “makes clear” that the fact that the plaintiffs didn’t transact directly with the merging entities isn’t “automatically a basis for dismissal,” it said. The focus rather remains on the plaintiffs’ harm, the alleged wrongdoing by the merging entities, and the relationship between those two factors, it said.

Taking the plaintiffs’ allegations as true, and “drawing all reasonable inferences in their favor,” the court finds “that they plausibly allege that their injuries flowed directly from the merger,” said Durkin’s order. The plaintiffs don’t simply allege “in a conclusory fashion that the merger caused them to pay more than they would have otherwise,” it said. They rather allege how the combination “reduced competition in the retail mobile wireless market and as a result, market participants AT&T and Verizon charged higher prices than they would have otherwise,” it said.

The merger consolidated an already highly concentrated market from four to three mobile network operators, said Durkin’s order. The plaintiffs allege that by making the newly combined T-Mobile’s scale and cost structure more like the other two big players, the merger “curtailed its incentive to compete,” it said.

In a market with high barriers to entry, transparent pricing and signaling between competitors, “these structural changes exacerbated the risk of price coordination,” said Durkin’s order. Moreover, in the two years since the merger, Dish Network “has failed to fill Sprint’s role as an active fourth competitor, instead losing hundreds of thousands of subscribers,” it said. The plaintiffs “have adequately alleged antitrust standing,” and they have adequately alleged “direct evidence of anticompetitive effects,” it said.