T-Mobile and Sprint head to court to defend their merger

Washington(CNN Business) Attorneys general from more than a dozen states are flexing their legal muscles in a landmark trial that could block T-Mobile's $26 billion merger with Sprint.

The trial, which begins Monday in Manhattan federal court, ranks among the most consequential in the history of the telecommunications industry. It challenges a combination of the third- and fourth-largest wireless providers in America, who say they need to join forces to compete more effectively against Verizon (VZ) and AT&T (T). (AT&T's subsidiary, WarnerMedia, owns CNN.)

In asking a court to prevent the mega deal, a coalition of state officials led by Xavier Becerra, California's attorney general; and Letitia James, attorney general of New York; broke from the US government. Earlier this year, the merger received a green light from the Justice Department and the Federal Communications Commission.

The resulting court battle will determine the future of T-Mobile (TMUS), but if the companies are barred from merging, it could send a warning signal across the business world.

"Consolidation is a phenomenon that's accelerating not just in one or two markets," Becerra told CNN on Monday. "We see it in the healthcare sector, all these digital platforms and services that are able to acquire and use our data... and in many cases, the fear is that these consolidations are about more than extracting efficiency."

The opening of the trial on Monday indicated just how much of a battle the two sides have been gearing up for. US District Court Judge Victor Marrero criticized both sides for the huge number of witnesses that have been called to testify during the trial: three to speak about the potential business plan of the merged company, 13 to speak about competition in the industry, 14 to speak about marketing and two to speak about network technology, among many others.

"You're suggesting that the judge needs to get hit over the head (with information from the witnesses," Marrero said. "I don't need 13 witnesses to tell me about competition in the industry."

The trial is expected to last about two weeks.

T-Mobile and Sprint have argued that their deal will lead to benefits for consumers. For the first three years after the close of the deal, T-Mobile CEO John Legere has said, the combined company will refrain from increasing prices. That would lock in some of the companies' low-cost plans, such as T-Mobile's $15-per-month prepaid plan that will include 2 gigabytes of mobile data, which the company announced last month.

But T-Mobile's acquisition will eliminate a vigorous competitor from the mobile marketplace, lawyers for the states are expected to argue before Judge Marrero. The deal will lead to higher prices for cellphone plans and fewer choices for consumers in the long run and undermine a longstanding belief that the country is better off with at least four competing national wireless carriers, according to the states.

"The greater the options, the greater the chance to test quality and the better a market can meet the needs of American consumers," Becerra told reporters in a conference call on Monday.

To address those concerns, T-Mobile and Sprint (S) committed to federal authorities this year to spin off some of their customers into a new fourth competitor to be managed by Dish Network (DISH), the satellite TV company.

That move, they said, will maintain competition while allowing the combined T-Mobile and Sprint to accelerate the rollout of new, ultra-fast 5G mobile data.

"New T-Mobile's vision promises to help close the digital divide by making robust, high-speed broadband internet access available to virtually every American on their mobile wireless devices," the companies said in a pre-trial memo filed to the court.

Examination of the first witness on Monday, Sprint Chief Marketing Officer Roger Solé, also suggested that the companies will try to prove that Sprint's future may be unclear without the merger.

Solé testified that the company has lost post-paid customers (the most valuable type of telecom customer) over the past two years. When federal prosecutors pointed out that the total number of lines on Sprint's network has been nearly steady, Solé said that number has been buoyed by new connected devices from existing customers, like smartwatches, but they don't generate as much revenue as new cell phone customers. He also argued that Sprint lacks the resources to be a meaningful competitor in 5G.

In recent months, T-Mobile has successfully winnowed down the list of states it faces in court — reaching settlements with individual attorneys general in Texas, Mississippi and Colorado.

But state officials representing 40% of the US population still oppose the deal. The list includes the attorneys general of Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Oregon, Pennsylvania, Virginia and Washington, DC.

Each state has the right to make its own choices about whether to negotiate settlements with the companies, said James.

"Our doors are always open," she said. "But we know this merger would hurt consumers and workers across the country."

Correction: An earlier version of this story incorrectly stated when T-Mobile announced its $15-a-month prepaid plan.