Not satisfied with relying on the U.S. Department of Justice to protect the competitive marketplace for cell phone service, Sprint Nextel today brought suit against AT&T, Inc., AT&T Mobility, Deutsche Telekom and T-Mobile seeking to block the proposed acquisition as a violation of Section 7 of the Clayton Act. The lawsuit was filed in federal court in the District of Columbia as a related case to the Department of Justice’s (DOJ) suit against the proposed acquisition.  It has been assigned to the same judge handling the Justice Department’s own lawsuit — Judge Ellen S. Huvelle.

“Sprint opposes AT&T’s proposed takeover of T-Mobile,” said Susan Z. Haller, vice president-Litigation, Sprint. “With today’s legal action, we are continuing that advocacy on behalf of consumers and competition, and expect to contribute our expertise and resources in proving that the proposed transaction is illegal.”

Sprint’s lawsuit focuses on the competitive and consumer harms which would result from a takeover of T-Mobile by AT&T. The proposed takeover would:

• Harm retail consumers and corporate customers by causing higher prices and less innovation;
• Entrench the duopoly control of AT&T and Verizon, the two “Ma Bell” descendants, of the almost one-quarter of a trillion dollar wireless market. As a result of the transaction, AT&T and Verizon would control more than three-quarters of that market and 90 percent of the profits;
• Harm Sprint and the other independent wireless carriers. If the transaction were to be allowed, a combined AT&T and T-Mobile would have the ability to use its control over backhaul, roaming and spectrum, and its increased market position to exclude competitors, raise their costs, restrict their access to handsets, damage their businesses and ultimately to lessen competition.

Sprint believes that in a marketplace dominated by AT&T and Verizon Wireless, the two largest players would likely collude on pricing and terms of service rather than compete heavily against one-another.  Sprint’s assumptions may already be true, considering both companies largely charge near-identical prices for service.

While Sprint proceeds with its own legal action, squabbling has broken out over whether or not AT&T so carefully crafted the terms and conditions of their $6 billion “breakup fee,” payable to T-Mobile USA if the merger fails, that it almost guarantees AT&T will never have to pay it.

“Under its agreement with Deutsche Telekom, the deal is only valid if the acquisition receives regulatory approval within a certain time frame,” an anonymous source told Reuters. “Also, the agreement could become invalid if regulatory conditions for the sale push the value of T-Mobile USA below a certain level.”

T-Mobile, unsurprisingly, disagrees with that characterization.

A Deutsche Telekom spokesman said Tuesday that AT&T could retreat from the transaction if the concessions necessary to get approval amount to more than $7.8 billion, but added Deutsche Telekom would still be entitled to receive the break-up fee package, which includes cash and wireless spectrum.

Rumors are swirling Sprint will begin selling Apple’s iconic iPhone this October, bringing the number of carriers supporting the wildly popular phone to three.  Sprint shares soared 10 percent on the news.  But while Sprint customers and shareholders are celebrating the potential imminent arrival of iPhone, launching the phone on the Sprint network is no simple matter, especially for the last remaining carrier delivering truly unlimited data.

On the Plus Side

Apple’s iPhone has become a must-have for a significant number of consumers.  They won’t leave the phone behind to switch carriers, not even for Verizon Wireless, until they introduced the phone earlier this year.  Now Sprint can win its own share of iPhone devotees.

Sprint’s iPhone promotions could draw customers away from larger carriers, especially enticed by Sprint’s worry-free unlimited data plan that has become extinct at other wireless companies.

The iPhone locks customers into new two-year contracts with Sprint, helpful security at a time when AT&T threatens to further consolidate the wireless industry in its efforts to acquire T-Mobile.

On the Down Side

Sprint’s phone subsidy expenses will skyrocket with Apple’s iPhone, which commands the highest subsidies in the industry.  Analysts suspect AT&T currently shells out up to $425 for iPhone 4 and $375 for iPhone 3GS.  Then AT&T sells the phone to consumers for $200 or less, making the subsidy back over the life of the two year contract.  That hits AT&T’s cash on hand hard.  For Sprint, regularly accused by Wall Street of spending too much on customer promotions, it will only increase those costs.  Sprint pays less than $150 for its top of the line Evo phones in comparison.

One guarantee the iPhone always delivers: Lots of data hungry users.  The introduction of the iPhone may ultimately threaten Sprint’s unlimited usage experience because of demand placed on an already burdened 3G network.  There is also no guarantee the first Sprint iPhone will support Sprint’s 4G network.

[flv width=”480″ height=”290″]http://www.phillipdampier.com/video/KMBC Kansas City Sprint May Sell iPhone in October 8-24-11.mp4[/flv]

KMBC in Kansas City talked with customers looking forward to Sprint’s iPhone.  Sprint is a major employer in Kansas City.  (2 minutes)

Stop the Cap! reader Larry Posk from Atlanta just threw AT&T overboard, fed up with the company’s anti-consumer policies, and Sprint paid him $125 to walk.

“I can’t think of a single reason to stay with the sharks at AT&T who are spending my money to pay off legislators to drop Net Neutrality, impose usage caps on all of their broadband and wireless accounts, and now try and wipe out T-Mobile; I’ve had enough,” Larry writes.  “I told AT&T goodbye and switched to an unlimited plan from Sprint, who more than covered my early termination fee and gave me a new smartphone for free.”

Larry is a beneficiary of Sprint’s customer win-0ver promotion that covers up to $125 in early termination fees when customers cancel service mid-contract.  Larry owed AT&T around $70, but Sprint gave him the full $125 benefit as a credit on his first Sprint bill.

“All I had to do was transfer my old AT&T number to Sprint, which effectively ended my AT&T service,” Larry says.  “Technically I did not even have to call AT&T to cancel service — the number transfer does the trick, but I felt extra satisfaction giving AT&T a piece of my mind.”

Larry doesn’t want to do business with companies that engage in Internet Overcharging.

“I can basically understand there might be a need for some limitations on wireless service, but when AT&T put the same scheme on their DSL and U-verse customers, it was clear they were simply ripping customers off and I want no part of it,” Larry says.

Sprint also gave Larry another 10 percent off because he belongs to a credit union that qualifies him for additional discounts.  In the end, he’s actually saving about $24 a month and isn’t exposed to a usage limit any longer.

“I recognize the fact Sprint’s network isn’t as wide-ranging as AT&T or Verizon, but I barely travel and Sprint’s coverage in Atlanta is actually better than AT&T because Sprint hasn’t dropped any of my calls,” Larry says. “Data speed is adequate for my needs, and is about on par with what AT&T was delivering here in Atlanta, but it’s not as fast as Verizon.”

Larry says he didn’t know about Sprint’s promotion until he asked, and he recommends customers inquire about Sprint covering their early termination fees before signing up for service.  We found some customers complaining they did not get the credit, but we suspect that might be because they didn’t follow the terms and conditions.  The most important one of all: you have to buy your new phone from Sprint, not a third-party retailer.  Here is the fine print:

Available for consumer and individual-liable lines only. Available online, via telesales, and in participating Sprint stores. Purchases from other retailers are not eligible for the service credit. Requires port-in from an active wireless line/mobile number or landline/number that comes through the port process to a new-line on an eligible Sprint service plan. Excludes $19.99 Tablet Plan. Request for service credit must be made at sprint.com/switchtosprint within 72 hours from the port-in activation date or service credit will be declined. Ported new-line activation must remain active with Sprint for 61 days to receive full service credit. Upgrades, replacements, add-a-phone/line transactions and ports made between Sprint entities or providers associated with Sprint (i.e. Virgin Mobile USA, Boost Mobile, Common Cents Mobile and Assurance) are excluded. You should continue paying your bill while waiting for your service credit to avoid service interruption and possible credit delay. A $125 service credit will be applied for netbooks, notebooks, tablets, mobile broadband devices and smartphones which include BlackBerry, Android, Windows Mobile, Palm, and Instinct family of devices. All other phones are considered feature phones. A $50 service credit will be applied for feature phones and Sprint Phone Connect (when available). Smartphones require activation on an Everything Plan with data with Premium Data add-on charge.

Sprint’s 4G experience has been nothing to write home about for a number of their customers, who are increasingly disabling the service to save on battery life.

Speed tests of Sprint’s 4G WiMAX experience show increasingly unimpressive results, as the network grows exponentially more crowded with customers trying to capitalize on the higher speeds 4G is supposed to deliver.  The result?  BTIG Research in April found, after exhaustive testing, the average Sprint 4G customer was now getting around 1/1Mbps service from a network that promised to deliver speeds many times that.

This isn't even a contest. (Source: BTIG Research)

Now an increasing number of customers are simply switching the 4G service off completely to extend battery life.

Doug Mahoney, a contributing editor for TechZone360, says he has about given up on WiMAX:

WiMAX tends to stay turned off so I run 3G and there’s no big differences in the convenience of reading email or using simple apps like Twitter and Foursquare.  With more public places starting to offer free WiFi, the case for WiMAX — or LTE — on a smart phone starts to grow weaker between the extra cost and the battery life issue.

Mahoney complains Sprint’s 4G network is simply not robust enough to support consistent speeds and access.  In suburban Washington, he compares Sprint’s 4G coverage to an open air tree, with spotty service scattered across the region.  As a result, his 4G phone spends a lot of time desperately-seeking-signal — a process that accelerates battery depletion.

Given Sprint’s WiMAX “tax” of an additional $10 a month for the service, Mahoney isn’t so certain he’d pay it again on a future Sprint phone.

Are the same speed reductions in store on Verizon’s currently-lightning-fast LTE 4G network few customers use right now?  Perhaps, but Verizon’s brand may force the company to make sure coverage is much stronger than what Sprint customers currently tolerate:

LTE has the same power consumption issues as WiMAX. I suspect Verizon will have better, more ubiquitous LTE coverage just due to the characteristics of the 700 MHz spectrum and physics involved, so I should have faster broadband available in more places rather than the abstract green tree coverage map.

After declining formal hearings and conducting their own investigations, the states of Louisiana, Arizona, and West Virginia approved the merger of AT&T and T-Mobile after briefly reviewing documentation promoting the merger, mostly supplied by the companies themselves.

The most controversial approval came from the Louisiana Public Service Commission, overseen by Gov. Bobby Jindal.  Jindal has strongly supported the merger, and his wife’s charity — the Supriya Jindal Foundation — receives substantial economic support from AT&T.  The Commission voted 4-1 for the merger, citing “overriding support locally, as is evidence by the diverse number of groups and officials who are in support.”

More accurately, AT&T contributed to a diverse number of groups that soon sent letters to the FCC supporting the merger.  Most notably, the Urban League of New Orleans, which touted the merger without disclosing the fact AT&T Louisiana president Sonia Perez is a member of the group’s governing board and their 2011 Annual Gala Chairperson.

In Arizona, AT&T won approval from state officials without any hearings, investigation, or much consideration, period.  In fact, less than two weeks ago Arizona officials issued subpoenas to Sprint/Nextel, demanding documentation from them regarding their opposition to the merger.

West Virginia’s Public Service Commission also gave a cursory review to the merger, quickly deciding it posed little impact on the state, since T-Mobile has ignored West Virginia all along, owning just three cellular towers and equipment on 27 others in the state.  T-Mobile also has no West Virginian employees.

State officials believe AT&T’s promise to deliver 4G upgrades inside West Virginia if the merger deal is approved.  But since T-Mobile has no presence in the state, the company’s argument of combining forces for better service doesn’t make much sense.

The PSC relied heavily on Attorney General Darrell McGraw’s pronouncement that the merger would not harm wireless competition in the Mountain State.  Besides, if it did, federal authorities would stop it.

“Any possible implications from this transaction on competition nationwide will be considered by federal authorities,” the PSC wrote.

West Virginia officials denied requests for a hearing before making their decision.

Attorneys General from 11 states not well-known for strong consumer protection have signed letters encouraging the approval of the merger.  Among them:  Alabama, Arkansas, Georgia, Kentucky, Michigan, Mississippi, North Dakota, South Dakota, Utah, West Virginia, and Wyoming.

Attorneys General in New York, California, and Hawaii are taking a much closer, and some say more critical look at the merger.  At the lead is New York’s Eric Schneiderman:

“Cell phones are no longer a luxury for a few among us, but a basic necessity. The last thing New Yorkers need during these difficult economic times is to see cell phone prices rise,” said Schneiderman. “Affordable wireless service and technology, including smart phones and next generation handheld devices, are the bridge to the digital broadband future. We want to ensure all New Yorkers benefit from these important innovations that improve lives.”

Attorney General Schneiderman stressed that some market conditions may differ across the state and highlighted the potential impact of the merger in areas like Rochester, Albany, Buffalo and Syracuse, where there are already fewer wireless options. He is also concerned about the impact on consumers throughout the state, where T-Mobile is a low-cost option.