Justice Department sues to block AT&T/T-Mobile merger | UPDATE

The Department of Justice has filed an antitrust lawsuit to block a proposed acquisition of Bellevue-based T-Mobile by AT&T. The department said the proposed $39 billion transaction would substantially lessen competition for mobile wireless telecommunications services across the United States, resulting in higher prices, poorer quality services, fewer choices and fewer innovative products for the millions of American consumers who rely on mobile wireless services in their everyday lives.

By Nat Levy • August 31, 2011 11:30 am
The Department of Justice has filed a lawsuit to block AT&T's proposed purchase of Bellevue-based T-Mobile.
The Department of Justice has filed a lawsuit to block AT&T's proposed purchase of Bellevue-based T-Mobile.

UPDATE | According to The New York Times, a federal judge overseeing the Department of Justice’s lawsuit against AT&T, has asked the two sides to discuss a settlement plan Sept. 21.

Original story is below

The Department of Justice filed an antitrust lawsuit Wednesday to block AT&T’s proposed $39 billion acquisition of Bellevue-based T-Mobile, arguing that it will cost mobile customers dearly and hinder innovation.

“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, said Deputy Attorney General James Cole. “This lawsuit seeks to ensure that everyone can continue to receive the benefits of that competition.”

The Justice Department said that AT&T could obtain the same network improvement that it claims will come from the transaction if it simply invested in its own network without eliminating a close competitor.

The merger would combine two of the top four mobile outlets, leaving AT&T and Verizon well ahead of other mobile competitors. AT&T representatives said the company was caught off guard by the Justice Department’s decision.

“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,” AT&T Executive Vice-President Wayne Watts said in a statement.

Watts said AT&T plans to fight the complaint, and the company has asked for an expedited hearing to make sure the deal moves along as quickly as possible. Should the deal fall through, AT&T would be forced to pay T-Mobile’s parent company Deutsche Telekom $3 billion.

T-Mobile declined comment on the deal until a formal statement could be prepared.

The complaint cites a T-Mobile document in which T-Mobile explains that it has been responsible for a number of significant “firsts” in the mobile industry, including the first handset using the Android operating system, Blackberry wireless email, the Sidekick, national WiFi “hotspot” access, and a variety of unlimited service plans. Without the increased competition from multiple carriers, companies like Verizon and AT&T may lack the motivation to produce innovative products, the complaint said.

T-Mobile’s greatest value in the market may be in its pricing. For years, the company has presented itself as the smaller, scrappier company with superior speed in its networks. The company has offered “disruptive pricing” on its smartphones, which company officials described as rate plans AT&T and Verizon couldn’t compete with. T-Mobile considers itself “the No. 1 value challenger of the established big guys in the market,” according to an internal T-Mobile document.

And it seems the big guys took notice.

The Justice Department’s suit presents a document from AT&T in January 2010 in which the company characterized T-Mobile as an immediate threat in the development of faster broadband networks, commonly referred to as 4G. In fact, an AT&T employee credited T-Mobile as the first company to have phones capable of this sort of browsing, according to court documents.

“We added them in reaction to potential loss of speed,” the employee said in the Justice Department’s complaint.

It remains unclear the long-term impact this could have on T-Mobile. Deutsche Telekom has said it is not interested in investing further in T-Mobile. It seems unlikely that another company would be willing and able to step and buy T-Mobile if AT&T’s plan is blocked.

“I just really can’t see them staying as a stand alone entity,” said John Marick, CEO of Portland-based Consumer Cellular, a cell phone wholesaler. “The question becomes if you do in fact block this, how far do they fall before something can happen with this?”

The Department of Justice is not the only group battling the merger. The Federal Communications Commission, which also must approve the deal, voiced its concerns over the proposed acquisition Wednesday, saying it could limit competition.

Sprint, the nation’s third-largest mobile carrier has been among the most vocal opponents to the deal. Sprint argues that the merger would destroy any competition for carriers other than Verizon or AT&T.

“By filing suit to block AT&T’s proposed takeover of T-Mobile, the DOJ has put consumers’ interests first,” said Sprint Senior Vice President of Government Affairs Vonya McCann. “Contrary to AT&T’s assertions, today’s action will preserve American jobs, strengthen the American economy, and encourage innovation.”

The department said that it gave serious consideration to the efficiencies that the AT&T claims would result from the transaction. AT&T said the deal would lead to the creation of 5,000 jobs. The department concluded AT&T had not demonstrated that the  transaction promised any efficiencies with enough impact to outweigh the deal’s effect on competition and consumers.