The Justice Department made a surprise decision on Wednesday against AT&T's proposed takeover of T-Mobile USA to create the No. 1 U.S. carrier, saying the $39 billion merger would reduce competition and filing suit to block it.
AT&T immediately pushed back, saying it would ask for an expedited hearing in federal court and promising to fight hard to prove the merger would fulfill its promise of lowering prices, creating jobs, and expanding wireless coverage to dead spots across the country.
In a key finding, the Justice Department concluded that competition should be calculated on a national, rather than local, level. AT&T had argued that it faced competition from smaller, regional wireless carriers in many local markets. But Justice Department lawyers rejected that notion, observing that the biggest carriers, including AT&T, Verizon, Sprint, and T-Mobile, made decisions and operated based on national considerations.
“We are seeking to block this deal in order to maintain a vibrant and competitive marketplace,” Deputy Attorney General James Cole told a news conference.
The merger would create the nation’s biggest wireless carrier, making Verizon No. 2 and leaving Sprint a distant third and vulnerable to a possible takeover by Verizon.
AT&T proposes a $39 billion takeover of T-Mobile USA. Here’s our take on its prospects for success as regulators, consumer groups and Congress weigh in.
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Cole rejected AT&T’s claims that T-Mobile was not a major competitor and voiced concern that the deal would reduce the number of national wireless competitors from four to three.
“The presence of an independent, competitive T-Mobile, and the competition between T-Mobile and AT&T, has resulted in lower prices for mobile wireless telecommunications services across the country than otherwise would have existed," the Justice Department complaint reads.
"If the proposed acquisition is consummated, AT&T will eliminate T-Mobile as an independent competitive constraint," it adds.
AT&T quickly disputed this.
“The DOJ has the burden of proving alleged anticompetitive effects and we intend to vigorously contest this matter in court," AT&T general counsel Wayne Watts said in a statement. "We remain confident that this merger is in the best interest of consumers and our country, and the facts will prevail in court."
Individual commissioners at the Federal Communications Commission, which must also approve the merger, also quickly wieghed in.
"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," FCC Chairman Julius Genachowski said in a statement.
FCC members Michael Copps and Mignon Clyburn expressed similar views.
If the deal is derailed, it could cost AT&T big. The firm has reportedly promised to give T-Mobile USA parent Deutsche Telekom $3 billion in cash, $2 billion worth of spectrum, plus roaming privileges valued at $1 billion if the deal is blocked. The investment research firm Stifel Nicolaus said that if the deal is not approved by September 2012, AT&T would be required to make this breakup payment to Deutche Telekom.
Stifel Nicolaus said the lawsuit is “serious and not meant as merely a negotiating strategy to bring AT&T to the table to negotiate conditions and concessions.”
Just hours before the Justice Department announcement, AT&T announced it would move 5,000 T-Mobile wireless call-center jobs back to the United States if the deal was approved. AT&T had also promised it would bring wireless to rural users, helping the Obama administration reach its goal of getting virtually all the population online.
The proposed deal has created an odd lineup of supporters and opponents. Communications Workers of America has lobbied for the merger, while public-interest groups have been outspokenly against it.
Andrew Jay Schwartzman, senior vice president and policy director for the Media Access Project, praised the Justice Department’s move.
"This ought not to be a big surprise. This is arguably the most anti-competitive move in recent American economic history,” Schwartzman said in a statement. “It is heartening that the Department of Justice has withstood withering political pressure from AT&T to do the right thing for the American public.”
Public Knowledge legal director Harold Feld agreed. “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," Feld said.
But the Communications Workers of America, which represents 40,000 AT&T wireless workers and which would have added members after the deal, called the Justice lawsuit “simply wrong.”
On Capitol Hill, the Judiciary committees in both the House and Senate held hearings on the merger earlier this year, while the Commerce committees in both chambers, which have jurisdiction over the FCC, have not taken up the matter.
“We applaud the Justice Department for their action to protect consumers in a powerful and growing industry that reaches virtually every American," Senate Judiciary Antitrust Subcommittee Chairman Herb Kohl, D-Wis.—who called on Justice earlier this summer to block the deal—said in a statement Wednesday.
"Preserving choices means ensuring competition, and competition ultimately benefits consumers.” Rep. Edward Markey, D-Mass., a senior member of the House Energy and Commerce Committee, agreed, describing the Justice lawsuit as “a victory for competition, consumers and choice.”
Still, dozens of House Democrats, many from rural states, have praised the benefits of the proposed merger and AT&T’s pledge to increase wireless broadband in rural areas.
Josh Smith and Sara Jerome contributed