Sprint and T-Mobile may face another legal challenge to merger

The long-time effort by Sprint and T-Mobile to merge may have hit another roadblock.

New York state’s attorney general, Letitia James, is set to announce a lawsuit seeking to block the merger Tuesday afternoon, according to a source familiar with the matter. Reuters reports that James is leading the lawsuit, with at least nine other state attorneys general planning to join.

Both companies’ stocks fell on the news of the lawsuit. Shares of Sprint dropped nearly 7%, while T-Mobile fell 2%.

The $26 billion merger deal would shrink the number of nationwide wireless carriers in the United States from four to three, prompting a number of antitrust investigations since the two companies first began exploring the deal in 2014.

T-Mobile and Sprint are the third and fourth largest wireless carriers in the United States. The companies finally agreed to their latest deal in April 2018. The merged company would take on the name T-Mobile and would be a significant competitor to Verizon and AT&T. (CNN is a unit of AT&T’s WarnerMedia.)

In April, the Wall Street Journal reported that Justice Department antitrust staff said they were unlikely to approve the merger, leading many to think the merger was off.

But then late last month, FCC Chairman Ajit Pai recommended that the FCC approve the deal after Sprint and T-Mobile made some revisions to the structure of the planned merger, causing Sprint’s share price to soar. Sprint and T-Mobile would need both agencies to sign off on their deal.

The companies agreed to certain coverage commitments, including 100 megabit-per-second download speeds (equivalent to fast home broadband speeds) accessible to about 66% of Americans within three years of the deal’s closing. The companies pledged to build a 5G network within six years following the merger. That network will, they promised, also include coverage for some rural Americans, and they said the new company will offer an in-home broadband product.

Sprint will divest its low-cost Boost Mobile wireless company, and that new company will promise to offer better prices than those currently offered by T-Mobile or Sprint for three years following the deal’s closing. The companies agreed to pay the FCC up to $2.4 billion in fines if they violate the agreement.

— CNN Business’ David Goldman contributed to this report.