Sprint Denied Access to Data U.S. Got From AT&T in Merger Case

Sprint Nextel Corp. (S) and the U.S. Justice Department lost their bid to share confidential documents as they seek to stop a proposed $39 billion purchase of T-Mobile USA Inc by AT&T Inc.

U.S. District Judge Ellen Segal Huvelle ruled yesterday that the government can’t give Sprint open access to data it collected from AT&T in its probe of the T-Mobile deal. Huvelle will let the department, which said Sprint’s knowledge of the wireless market could help its lawsuit, ask court permission to share material with Sprint on a case-by-case basis.

“I don’t see it as efficient or fair,” Huvelle said at the end of a two-hour hearing in Washington. “If the Justice Department has need for specific documents, that can be arranged.”

Huvelle didn’t rule on AT&T’s request to throw out lawsuits brought by Sprint and Cellular South Inc. to block the T-Mobile deal, saying she would take it “under advisement.” She set another hearing in the government’s case for Nov. 30.

AT&T argued that Overland Park, Kansas-based Sprint can’t challenge the purchase under antitrust law because it’s a competitor rather than a consumer. It also contended Sprint’s claims that the acquisition would hurt its business are unfounded.

‘Suffer Anticompetitive Harm’

“They have to allege in the wireless market that they’d suffer anticompetitive harm,” Michael Kellogg, a lawyer for Dallas-based AT&T. “They haven’t alleged any effects about the market.”

Cellular South Inc., based in Ridgeland, Mississippi, filed a similar lawsuit that AT&T also asked Huvelle to dismiss.

Huvelle’s decision on the document-sharing complicates the company’s case, said Andrew Gavil, an antitrust law professor at Howard University School of Law in Washington.

“It makes it more cumbersome and difficult for the Sprint lawyers to directly coordinate with the government lawyers,” he said in an interview.

Yesterday’s hearing was the first since the Justice Department sued to block the deal on Aug. 31 that addressed underlying antitrust issues in the case.

Market Power

Sprint’s attorney, Steven Sunshine, told Huvelle that the merger would increase AT&T’s market power to secure deals for exclusive handsets.

“If the merger goes through, it will tip the market toward duopoly,” said Sunshine, a partner at Skadden, Arps, Slate, Meagher & Flom in Washington. “It will make it difficult for Sprint to get key inputs like handsets, as well as raise costs for roaming and backhaul.”

Huvelle asked how exclusive deals can be considered anticompetitive, noting that Sprint and Cellular South signed deals recently to offer the Apple Inc.’s iPhone.

Sunshine said the concern was AT&T’s bargaining power over handsets. The other companies spent five years winning iPhone contracts while “customers shifted to AT&T because of that exclusive.”

He said the current market where AT&T has a 30 percent share doesn’t offer any indication of what might happen if AT&T were more dominant.

Out of Business

Huvelle asked Sprint lawyers at least twice whether the T- Mobile deal could put the company out of business.

“The question is whether our ability to increase output and to discipline prices, whether that survives,” Sunshine said.

The combination of AT&T, the second-biggest mobile phone provider, and Bonn-based Deutsche Telekom AG (DTE)’s T-Mobile unit would form the country’s largest wireless phone company, passing the current market leader Verizon Communications Inc. (VZ) Sprint has lost money for 15 consecutive quarters.

It’s harder for rivals to bring antitrust cases since the Supreme Court in 2007 threw out a case accusing Verizon and other local-telephone companies of territory-based non-compete agreements, said Jeffrey Jacobovitz, an antitrust lawyer with McCarthy, Sweeney & Harkaway PC in Washington.

The high court ruled that plaintiffs such as Sprint must show specific, rather than general, evidence of wrongdoing.

John Taylor, a spokesman for Sprint, told reporters after the hearing that the proceeding was a discussion of “narrow, procedural matters that was not a reflection of the merits of the government’s case against AT&T.”

Michael Balmoris, a spokesman for AT&T, declined to comment.

The government’s case is U.S. v. AT&T Inc. (T), 11-01560; Sprint’s case is Sprint Nextel Corp. v. AT&T Inc., 11-01600; and Cellular South’s case is Cellular South Inc. v. AT&T Inc., 11- 01690, U.S. District Court, District of Columbia (Washington).

To contact the reporters on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net; Sara Forden in Washington at sforden@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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