Courtroom drama heats up as DOJ nears a decision on Sprint and T-Mobile

T-Mobile and Sprint are set to face off in federal court Friday against some of America’s most powerful states, including New York and California, which are seeking to block the companies’ landmark telecom merger.

The hearing marks the beginning of a critical test for the two wireless carriers: At stake is a $26 billion deal to combine the nation’s third- and fourth-largest cellular providers, creating a massive new company with as many as 127 million customers.

Along with New York and California, attorneys general from Colorado, Maryland, Michigan, Mississippi, Connecticut, Virginia, Wisconsin and the District of Columbia have signed onto the lawsuit, filed earlier this month. They argue the tie-up will ultimately lead to higher prices for consumers because it eliminates an aggressive competitor — Sprint — from the marketplace.

The states allege that T-Mobile’s controlling shareholder, Germany’s Deutsche Telekom, has sought consolidation in the wireless network market believing it would lead to “less competition and better returns for network operators,” according to the lawsuit, which cites internal Deutsche Telekom documents.

T-Mobile and Sprint have argued the merger is crucial to their ability to take on Verizon and AT&T, which owns WarnerMedia, the parent company of CNN.

The Justice Department is inching closer to its own announcement on whether it will to allow the merger to proceed. A decision could come by the end of the week or early next week, a person familiar with the matter told CNN on Tuesday.

What Friday’s status conference with state lawyers may hold is unclear, particularly given that negotiations with the Justice Department also remain in flux. But the states appear committed to their lawsuit regardless of what DOJ concludes. In an op-ed Tuesday in USA Today, New York Attorney General Letitia James said T-Mobile and Sprint have injected competition into the wireless industry, leading to lower prices and better network quality.

“A merger between T-Mobile and Sprint would end competition between the two carriers with the greatest incentives to keep prices low and innovate,” she wrote. “This isn’t speculation but widely accepted economic theory.”