The U.S. Department of Justice has sued to block AT&T’s proposed US$39 billion takeover of T-Mobile. The civil antitrust lawsuit that Justice filed in Washington’s federal court on Wednesday says the deal would substantially diminish competition in the wireless market.
AT&T shares fell 5.5 percent after the news broke.
The DoJ asked for a court order to block the deal from being implemented due to possible violations of U.S. antitrust laws.
With more than 300 million mobile devices in service across the country, AT&T, T-Mobile, Verizon and Sprint control more than 90 percent of the market, according to the government.
The deal would topple Verizon as the No. 1 wireless carrier in the U.S. and lead to higher prices, lower quality services, a smaller pool of choices, and decreased technological innovation for Americans, DoJ said.
The proposed deal has spurred protest from consumer groups and competing telecom companies.
AT&T’s Jobs Carrot
Earlier, AT&T had offered a sweetener to encourage approval of the deal, saying the merger would allow it to bring 5,000 outsourced jobs back into the U.S.
AT&T said it was surprised by the DoJ’s actions. The mobile giant plans to argue for the validity of the deal and challenge the lawsuit.
“We have met repeatedly with the Department of Justice, and there was no indication from the DoJ that this action was being contemplated,” Wayne Watts, AT&T senior executive vice president and general counsel said in an statement sent to E-Commerce Times.
“We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed,” he continued. “The DoJ has the burden of proving alleged anticompetitive effects, and we intend to vigorously contest this matter in court.”
The DoJ did not respond to the E-Commerce Times’ request for comments by press time.
DoJ as Big Brother
The government is wielding a lot of power in launching this suit.
“They have Fannie Mae and Freddie Mac and parts of General Motors, and now AT&T. It’s tantamount to the government buying AT&T,” Laura DiDio, principal analyst at ITIC, told the E-Commerce Times.
“We keep seeing big government getting bigger and bigger,” she complained. “This is just more regulation. It’s intrusive government. They argue they are protecting consumers, but it smacks of government control. It’s more and bigger regulation.”
Why is the DoJ blocking AT&T after leaving HP alone during its run of acquisitions? DiDio wondered.
“There’s a shift in Washington to more regulation,” she said, “but why are they being more intrusive with the telcos then they were with the data companies? Nobody thought of blocking HP when they bought Compaq or EDS.”
Why the government is stepping in after AT&T offered to bring jobs back to the United States is also puzzling, in DiDio’s view.
The job promises made the deal more attractive than anything HP bothered to do to get government approval, she noted. “AT&T was giving job guarantees up front, while HP couldn’t wait to ship jobs overseas. Why is this government regulation only being applied to the telcos? It doesn’t make any sense.”
T-Mobile’s Now Uncertain Horizon
Things have apparently changed in Washington. Much of the telco industry expected the acquisition would get the go-ahead. Even while consumer groups fought the merger — arguing that consolidation would hurt competitive pricing — the assumption in the market was that the deal would ride.
“It’s certainly a switch from what we generally expect, which is that everything goes through,” Allen Nogee, principal analyst for wireless technology at In-Stat, told the E-Commerce Times.
“I do see anticompetitive aspects of this,” he acknowledged, but “before this occurred, T-Mobile was having difficulty being the fourth-largest carrier. So what happens to T-Mobile now?”
The future is uncertain, to say the least — but if the merger gets blocked, T-Mobile could look to other acquisition partners.
The Justice Department’s suit doesn’t preclude a different acquisition of T-Mobile, Nogee pointed out.
“Maybe Google, Apple or Microsoft could acquire them,” he said. “They have a lot of value, but they haven’t progressed that far on 4G. Their owner hasn’t wanted to spend a lot of money on them. I don’t know what will happen to T-Mobile if this doesn’t go through.”