Legere Says Sprint Deal Won't Slow T-Mobile's Competitive Spirit

“We were going to fix this industry," said Legere of T-Mobile’s strategy after he joined in 2012. With T-Mobile churn high, about 2.6 percent at that time, the CEO sought to solve pain points for customer, he said. People used to hate carriers, so T-Mobile sought to be different from Verizon and AT&T, which had become "lazy,” he said. Each T-Mobile move forced the top two carriers to follow, Legere said.

Buying Sprint will give T-Mobile capacity it needs to keep growing its number of customers at the current pace, Legere said. It will bring a world-best 5G network that T-Mobile can't do on its own, he said. The deal will lower prices and let the company compete with cable broadband, he said. Without the combo, one option is to raise prices, among the company's "worst nightmare scenarios," he said. "We'll have some 5G, but nothing close” to what it would have with Sprint, he said.

DOJ insisted on creating a fourth facilities-based carrier, Legere said. Comcast and Charter Communications were other candidates, but Dish was chosen including because of its "spectrum trove,” he said. Negotiating with Dish Chair Charlie Ergen was "tough” and "angering" sometimes, Legere said.

“You were a very good competitor,” said Munger Tolles’ Glenn Pomerantz for the states. Competition spurs the weak to do better, he said. It also forces the strong to figure out how to stay that way, returned Legere.

T-Mobile spent $40 billion on the network in years after the AT&T deal fell through, which is about $36 billion more than the break-up fee it received, and billions came from parent Deutsche Telekom, Pomerantz pointed out. Legere agreed, but noted the company began by reducing costs and funding itself.

Legere likes to say Sprint will "supercharge" the carrier, but he also said that in 2015 about a potential deal with Dish, said Pomerantz, showing a document from that time. If the deal isn't done, "Dish is still sitting out there with a treasure trove of spectrum," plus spectrum auctions are coming, the states’ attorney said.

“There is nothing in a Plan B that would duplicate" what T-Mobile gets from buying Sprint, Legere said. Dish spectrum wouldn't be as "complementary,” he said. It would take longer to wait for spectrum from auction to become usable, and that's only if T-Mobile won, the CEO said.

Economist Defends

Carriers' attorney George Cary tried to poke holes Thursday in an analysis by Carl Shapiro of University of California, Berkeley. The Cleary Gottlieb lawyer pressed the economist on whether he sufficiently considered possible efficiencies, including long-term consumer benefits. Balance near-term harms against later benefits, while considering that the further out one looks, the more speculative, said Shapiro. Cary also asked if reputational effects of raising prices were adequately weighed.

Cary disputed Shapiro's use of Facebook data on customer movement among carriers as detected by the social app. Cary said it's on only 60 percent of the population's phones and skews to a younger demographic. T-Mobile has a younger demographic, so the data might overstate their customers, he argued.

The attorney tried citing a 3-2 beer industry combination -- Miller and Coors -- as an example of a deal allowed due to efficiencies. The economist noted that DOJ later opposed Anheuser-Busch Inbev's buying Modelo while noting price coordination between Inbev and MillerCoors.

A Verizon 5G strategy document shows the carrier sees a threat from new T-Mobile, Cary said. Shapiro said it doesn't make a comparison with a world where there's no combination. The economist noted, "I wouldn't expect them to write down they're planning to coordinate."

Shapiro stressed he's mainly concerned with prices staying the same, ending the trend of falling prices. That means higher prices with the deal than without. Cary focused on Shapiro's not saying monthly bills would rise, and the lawyer argued prices already are flattening.

It's unlikely a competitor would be "so bold" as to increase price in the first day or month after the transaction, said Judge Victor Marrero. It's "counterintuitive” and the company would lose reputation, he said. Shapiro agreed but replied his primary concern is industry pulling back on price cuts and possibly reducing quality -- for example, by throttling traffic -- while prices are unchanged. Subscribers mostly wouldn't notice to complain because "people don't think that way," he said.

Comcast's goal with Xfinity Mobile is to add value for customers of its traditional businesses, testified Chief Business Development Officer Sam Schwartz. The mobile virtual network operator isn't yet profitable, he said. Its deal with Verizon requires Comcast sell only mobile service bundled with another Comcast service, and restricts marketing that says it uses the Verizon network, he said. Disclosing the network "definitely" would help Comcast sell service, Schwartz said. "By definition, an MVNO is reliant on their [mobile network operator] for service."

Verizon and Comcast have had many disagreements about their MVNO agreement, and have resolved some but not all, Schwartz said. It proves states' point MVNOs aren’t independent competitors in the market threatening big carriers, said Munger Tolles' Sarah Boyce.

Comcast talked with Sprint and SoftBank in May 2017 about using the cable network to densify Sprint's wireless network, but negotiations fell through while Sprint was also negotiating with T-Mobile, Schwartz said. Sprint would have leveraged cable lines and boxes in people's homes in exchange for an MVNO agreement that would have given Comcast more control than it has now, he said. The idea " intrigued" Comcast enough to set aside capital for proof-of-concept cities, he said. Comcast remains interested, he said.

New Street’s Vivek Stalam told investors Shapiro was a strong witness. “Shapiro performed very well in support of the states’ case,” the analyst wrote. “The companies (defendants) attempted several lines of questioning to poke holes in Shapiro’s analysis and the states’ case, but they were largely unsuccessful.”