In a stunning move, the U.S. Justice Department sued to block AT&T Inc. from their $39 billion takeover of T-Mobile USA Inc. claiming the deal with “substantially lessen competition” in the wireless market. The Government claims that the merger would violent U.S. anti-trust law and asked courts to order a blocking implementation of the deal.
“I don’t see any room to settle the case,” said Bert Foer, head of the American Antitrust Institute in Washington, in an interview. “They have clearly drawn a line in the sand.”
The merger would bring the second and fourth largest mobile carriers together to create a new market leader ahead of Verizon and dwarf Sprint who argued against the deal. “AT&T’s elimination of T-Mobile as an independent, low- priced rival would remove a significant competitive force from the market,” the government said in court papers.
AT&T was surprised by the government suit and has asked for an expedited hearing in the matter.
“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’s general counsel, said in a statement. He said the company intends to fight the litigation.
Experts believe that the Justice Department wouldn’t have sued if there was a settlement that would allow the merger to go through, leaving AT&T in a position to either take all or nothing. The American Antitrust Institute, which supports antitrust enforcement and opposes the merger, says the Justice Department would have to provide an entire analysis on the national telecommunications market and settle it by local markets if a negotiation was on the table.
“Given the size of the cancellation fee that was negotiated into this agreement, AT&T has the incentive to fight,” said Andrew Gavil, a law professor at Howard University in Washington. “The fact that the Justice Department is challenging the deal doesn’t mean they won’t negotiate a resolution at some point.”
AT&T has been working to bolster its case as analysts became less certain the merger would be successful. While AT&T pledged to bring 5,000 call-center jobs back to the U.S. from other countries since the merger closes and that it wouldn’t cut any U.S. wireless call-center jobs as part of the deal, the jobs plan doesn’t change AT&T’s forecast for saving from the union.
Some U.S. lawmakers have said the deal may reduce competition and raise consumer costs. The Federal Communications Commission this month asked AT&T for more information on how the deal would expand high-speed wireless service in the U.S. Cable and Satellite carriers with Dish Network Corp. and Cablevision Systems Corp. also protesting the deal.
In July, AT&T submitted economic models to the FCC showing how the merger would reduce prices and increase service in large metropolitan markets. The models offer arguments that the merger would lessen the strain on the company’s wireless network, lower costs and increase quality. The combination would reduce wireless communication competition in the U.S., driving prices higher, making service worse and offers fewer products for U.S. consumers, the Justice Department claimed in its statement. The case is U.S. v. AT&T Inc., 11-01560, U.S. District Court, District of Columbia.
While I can see how this may look in the eyes of the Federal Government, there is no cause for alarm in my opinion. AT&T and Verizon are both large carriers in the mobile market, and while the merger will limit the number of choices in the mobile market, it might also make room for less popular companies to compete. The mobile market has been dominated by the big 4 for so long; Verizon, AT&T, T-Mobile and Sprint, with most competitors like Nextel or Cingular being bought by the big 4 for the same reason AT&T wants to merge with T-Mobile, to create a better wireless carrier.
The claim that their merger would produce a lack of quality is highly false, with what we have seen already, AT&T have been slowly cutting back on their features to lessen the already heavy strain on their network thanks to the popularity of smartphones like the iPhone and Android. The merger of both AT&T and T-Mobile will lessen the burden their respective networks carry, and will raise the quality of service for both respected parties.
The only claim I find to be legitimate is that it will start land sliding into a monopolistic market if the competition to overcome the merger causes more companies to merge in response (say in a very rare off-chance Sprint and Verizon) which would leave most consumers to choose one or the other without any option for a ‘income friendly’ provider. However, the same outlook can be found with the previous attempted merger between DirectTV and Dish Network back in 2001 which was also unable to complete for close to the same reason.
From where I am standing, the merger will not go through, as much as I would prefer to have the idea of a better network and more call-center jobs brought to America, it is neither a fair or necessary merger in the mobile market. As much as it might pain me to say it, if AT&T needs more power, it will just have to do it the old fashion way of charging more for its services and trying to expand slowly.