In a surprise move, considering the disposition of some past business marriages, the U.S. Department of Justice today filed a civil antitrust lawsuit to block AT&T’s proposed acquisition of T-Mobile USA. Paperwork now is in the hands of the U.S. District Court for the District of Columbia.
“The combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for mobile wireless services,” said Deputy Attorney General James M. Cole at this morning’s press conference. “Consumers across the country, including those in rural areas and those with lower incomes, benefit from competition among the nation’s wireless carriers, particularly the four remaining national carriers. This lawsuit seeks to ensure that everyone can continue to receive the benefits of that competition.”
Added Sharis A. Pozen, acting assistant attorney general in charge of DoJ’s Antitrust Division, “T-Mobile has been an important source of competition among the national carriers, including through innovation and quality enhancements such as the roll-out of the first nationwide high-speed data network. Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer.”
He continued, “The Antitrust Division conducted an exhaustive investigation. We conducted dozens of interviews of customers and competitors, and we reviewed more than 1 million AT&T and T-Mobile documents. The conclusion we reached was clear: Any way you look at this transaction, it is anticompetitive. Our action today seeks to ensure that our nation enjoys the competitive wireless industry it deserves.”
The four largest U.S. wireless carriers – AT&T, T-Mobile, Sprint and Verizon – account for more than 90 percent of mobile wireless connections. According to today’s complaint, AT&T and T-Mobile compete head to head nationwide, including in 97 of the nation’s largest 100 cellular marketing areas. They also compete nationwide to attract business and government customers.
“AT&T’s acquisition of T-Mobile would eliminate a company that has been a disruptive force through low pricing and innovation by competing aggressively in the mobile wireless telecommunications services marketplace,” it notes.
DoJ’s complaint also states that regional providers face significant competitive limitations, largely stemming from their lack of national networks, and are therefore limited in their ability to compete with the four national carriers. DoJ also says any potential entry from a new mobile wireless telecommunications services provider would be unable to offset the transaction’s anticompetitive effects because it would be difficult, time-consuming and expensive, requiring spectrum licenses and the construction of a network.
But the Department claims it did not enter into this decision lightly, and that it gave “serious consideration” to the efficiencies that the merging parties claim would result from the transaction. However, it concluded AT&T “had not demonstrated that the proposed transaction promised any efficiencies that would be sufficient to outweigh the transaction’s substantial adverse impact on competition and consumers.” In addition, it claims “AT&T could obtain substantially the same network enhancements that it claims will come from the transaction if it simply invested in its own network without eliminating a close competitor.”
If this deal does indeed end up on the scrap heap, AT&T stands to lose a significant amount of cash, services and collateral. In May, news reports said AT&T told T-Mobile parent Deutsche Telekom it would cede $6 billion (half in cash) if the merger falls through.
"The AT&T/T-Mobile merger was always going to be a heavy lift and, in recent weeks, there were troubling signs insofar as whether the Obama administration would, in fact, approve the transaction, said Jeffrey S. Silva, senior policy director/Telecommunications, Media and Technology at Washington, D.C.-based Medley Global Advisors LLC, in a call with CT Reports. "Having said that, this deal is not apparently dead. The timing of the Justice Department’s action is at once surprising and intriguing. The transaction appears is to be entering a new phase where litigation and negotiation are intertwined. This is not over, and other parties entertaining thoughts of doing deals in the wireless space will likely have to continue waiting on the sidelines until the dust settles."
Justice’s decision was backed fully by the Federal Communications Commission. In a statement released after DoJ’s announcement, FCC Chairman Julius Genachowski said, “Competition is an essential component of the FCC’s statutory public interest analysis and, although our process is not complete, the record before this agency also raises serious concerns about the impact of the proposed transaction on competition. Vibrant competition in wireless services is vital to innovation, investment, economic growth and job creation, and to drive our global leadership in mobile. Competition fosters consumer benefits, including more choices, better service and lower prices.”
Response to the news of the civil suit came quickly.
According to Wayne Watts, AT&T’s senior executive, vice president and general counsel, “We are surprised and disappointed by today’s action, particularly since we have met repeatedly with the Department of Justice and there was no indication from the DOJ that this action was being contemplated. We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed. The DOJ has the burden of proving alleged anti-competitive affects and we intend to vigorously contest this matter in court…We remain confident that this merger is in the best interest of consumers and our country, and the facts will prevail in court.
The Communications Workers of America, which staunchly has backed this deal, said, “The decision by the U.S. Department of Justice to seek to block the merger of AT&T and T-Mobile USA is simply wrong. In today’s sinking economy, where millions of Americans are looking for work, the DoJ has filed suit to block a merger that will create as many as 96,000 quality jobs. In the United States, where too many Americans, especially in rural areas, don’t have access to the tools of Internet technology, the DoJ is looking to block a plan to build out high speed wireless access to 97 percent of the country should be opposed.”
It added, “In a nation where workers’ rights are routinely violated, as occurs everyday at T-Mobile, the DoJ apparently believes that workers should be on their own instead of having a fair choice about union representation. The DoJ’s action would put good jobs and workers’ rights at the bottom of the government’s priorities…Instead of acting to block this merger, our government should be looking to support companies that create, keep and return good jobs to the United States.”
(Editor’s note: At this time, T-Mobile USA is not a union shop.)
Posited Marc Oestreich, legislative specialist/Technology Policy at The Heartland Institute, “The U.S. government has been creeping further away from the original intent of antitrust laws with each court decision. Today’s move to block the merger of AT&T and T-Mobile signals they’ve forgotten the intent of the law altogether. The Obama administration must be careful to remember that antitrust law doesn’t exist to protect companies from their competition, but rather to protect consumers from the effects of a competition-less market…Since mobile technology is the primary access point to the Internet for minorities and the impoverished, any move to better the service would seem one in alignment with the president’s own goals to improve Internet access for those communities.
He concluded, “It is high time that regulators and bureaucrats ask themselves what is in the best interest of the consumer. Had they done so to begin with, we could have avoided a multi-million-dollar interest-group PR campaign that, when all is said and done, will only increase access costs for those consumers in the greatest need.”
On the flip side, Vonya B. McCann, senior vice president/Government Affairs for Sprint (which got snaked on the T-Mobile deal earlier this spring), issued the following statement: “The DoJ today delivered a decisive victory for consumers, competition and our country…Sprint applauds the DOJ for conducting a careful and thorough review and for reaching a just decision – one which will ensure that consumers continue to reap the benefits of a competitive U.S. wireless industry. Contrary to AT&T’s assertions, today’s action will preserve American jobs, strengthen the American economy and encourage innovation.”
(To read more about Sprint and T-Mobile, click here)
Chiming in, Harold Feld, legal director at consumer advocate Public Knowledge, said, “Fighting this job-killing merger is the best Labor Day present anyone can give the American people. AT&T’s effort to recreate ‘Ma Cell’ by holding rural broadband hostage and threatening American jobs deserves nothing but scorn. The FCC should move as quickly as possible to follow the lead of the Department of Justice and reject the merger.”
His sentiments were mirrored by Rural Telecommunications Group General Counsel Carrie Bennet, who opined, “DoJ’s pre-Labor Day decision (less than four months after AT&T filed to acquire T-Mobile) shows that there is no question that this merger would have been bad for rural America, rural consumers and rural carriers. AT&T pulled out all of the stops to get this deal done and failed. RTG applauds the DoJ for allowing wireless competition to live to see another day, and to allow T-Mobile to continue to innovate and be the low price alternative to AT&T and Verizon.”
She added, “The jobs that have been saved today and the competition that has been preserved across the United States will go a long way to help the U.S. economy.”
In separate but related news, earlier today, AT&T said it would “bring back 5,000 wireless call-center jobs to the United States that today are outsourced to other countries,” should its merger with T-Mobile be approved. The carrier also promised the merger “will not result in any job losses for U.S.-based wireless call center employees of T-Mobile USA or AT&T, who are on the payroll when the merger closes.”
– Debra Baker