In December 2016, Masayoshi Son, the billionaire owner of Sprint, paid a visit to Trump Tower to meet the president-elect. Afterward, the two announced that Mr. Son had spontaneously decided to invest $50 billion in the United States and create 50,000 jobs. There was an unspoken but widely understood quid pro quo. The Trump administration would finally agree to do what the Obama administration had refused: allow a giant, anticompetitive merger of Sprint with T-Mobile, leaving just three gigantic wireless carriers in the country.

“A Sprint/T-Mobile merger is a done deal,” a business columnist for PC magazine proclaimed after the meeting, as Sprint’s stock surged. In April 2018, with Trump-appointed officials in place at the Justice Department and the Federal Communications Commission, Sprint and T-Mobile announced their $26 billion union. The chief executives of the two companies vaguely promised, in an interview on CNBC, that the merger and leadership in 5G would bring “3 million jobs.” (Most major mergers, in fact, lead to firings). But President Trump and Mr. Son had made a giant miscalculation, one the business press also missed. They forgot about the states.

This week, nine states and the District of Columbia, led by New York’s attorney general, Letitia James, filed suit in federal court in New York to block the merger. With this move, the states have jumped the gun on the federal government, which has yet to fully approve or reject the deal. And if the states win in court, as they seem likely to, the merger is dead. Inadvertently, this corporate blunder has created a new role for the states in merger review: acting as a backstop in cases of gross dereliction of duty by the federal government.

Missing the little detail of state power was a serious error, though perhaps an understandable one. State authorities have not, in recent history, acted independently to block a major merger. Indeed, they were usually treated as afterthought. But the states were given, by Congress, the power to enforce federal law to block mergers whose effect “may be substantially to lessen competition.” That power has now come into its own, reinvigorating a strand of economic federalism that has long been dormant.

Sprint and T-Mobile’s error was born of the dangerous assumption that with the right lobbying, you can just ignore the law. That worked to a degree, but the obvious anti-competitive nature of the deal made the merger a tempting target for Beau Buffier, the head of New York’s antitrust bureau, who is the principal instigator of the lawsuit. He had, in fact made it clear to anyone who was listening, in a speech at a 2017 meeting of the American Bar Association, that he planned to awaken the force of state merger oversight. Perhaps everyone thought he was just kidding.

What set off Mr. Buffier was that, from the point of view of an antitrust lawyer, the combination of T-Mobile and Sprint is evidently and almost painfully illegal. Four-player competition in the mobile phone service industry has worked. Both Sprint and T-Mobile are price-cutters and pioneers of ideas like T-Mobile’s “no fees” promises, as well as the unlimited plans beloved by consumers. They compete fiercely for business, and that has lowered prices for consumers. It is elementary economics to expect that there will be far less competition — and higher prices for consumers — if the number of major players falls from four to three.

To be sure, Sprint and T-Mobile claimed that a merger would lead to better competition and significant investments in establishing 5G wireless networks — and to beating the Chinese companies trying to do the same thing. But the claims that they were uniting to fight some kind of yellow peril or an AT&T-Verizon duopoly were unconvincing.

Companies tend to act in their financial self-interest, and where there is less competition, they feel much less need to invest money to keep customers (ask your local cable company). And internal documents, referred to in a partly redacted complaint filed as part of the lawsuit, appear to confirm that the carriers saw the merger less as an opportunity to do battle with China (always an unclear mission for a domestic phone company) but rather as an opportunity to raise prices. The companies’ own economists predict the merger will cost subscribers at least $4.5 billion a year.

Even those who think the merger is uncompetitive might not welcome the entry of states into the merger review process, because it shatters consistency in national economic policy. But that argument reflects a misunderstanding of what state law enforcement is doing here.

The Trump administration is not being consistent when it holds out the implicit promise that befriending the president will lead to reduced law enforcement. The states, it is worth remembering, are a part of a constitutional design meant to prevent abuses of power. In a case like this, they serve as Congress intended, as a backstop against federal failure.

Or, put it another way: The lawsuit sends a message that meeting with the president and promising billions of dollars will not buy off American law enforcement — or at least not all of it.

Tim Wu is a law professor at Columbia, the author of “The Curse of Bigness: Antitrust in the New Gilded Age” and a contributing New York Times Opinion writer.

The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: [email protected].

Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram.

Source: Read Full Article