08/31/11 Justice Dept. to block AT&T’s T-Mobile deal

The U.S. Department of Justice has filed suit in a federal court in  Washington, D.C., to block AT&T’s proposed takeover of T-Mobile USA.

The Justice Department said today in its filing with the U.S. District Court  for the District of Columbia that the deal would “substantially lessen  competition” in the wireless industry, and thus, should be blocked from  approval. The lawsuit went on to say that the deal could potentially cause  “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.”

“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,” Deputy Attorney General  James M. Cole said in a statement announcing the decision. “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.”

AT&T came out quickly against the Justice Department’s decision. In an  e-mailed statement to CNET, the company’s senior executive vice president and  general counsel, Wayne Watts, said that the company was blindsided 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,” Watts said. “At the end  of the day, we believe facts will guide any final decision and the facts are  clear. This merger will help solve our nation’s spectrum exhaust situation and  improve wireless service for millions; allow AT&T to expand 4G mobile  broadband to another 55 million Americans, or 97 percent of the population;  [and] result in billions of additional investment and tens of thousands of jobs,  at a time when our nation needs them most.”

Bloomberg was first to report on the news.

Earlier this year, AT&T announced  its plans to acquire T-Mobile USA from Deutsche Telekom in a deal valued at  $39 billion. As soon as the deal was announced, critics chimed in, saying that  it could stifle competition in the marketplace and ultimately hurt both  consumers and competitors. Sprint, which could be dwarfed by the combined  AT&T and T-Mobile, was especially outspoken about the deal, saying that it  would fight it to the end.

“Sprint urges the United States government to block this anticompetitive  acquisition,” the company said in a statement following the announcement of the  deal. “This transaction will harm consumers and harm competition at a time when  this country can least afford it. So on behalf of our customers, our industry,  and our country, Sprint will fight this attempt by AT&T to undo the progress  of the past 25 years and create a new Ma Bell duopoly.”

Although the merger faced criticism, both the Federal Communications  Commission and the Department of Justice continued their review of the deal, and  were expected to make their decision on the merger early next year. The fact  that the Justice Department has already filed a petition against the merger is  somewhat of a surprise.

T-Mobile as a ‘disruptive force’

The Justice Department’s problems with the merger go beyond concerns over  pricing and competition. The Justice Department said in a statement today that  T-Mobile has proven to be “a disruptive force” in the wireless industry,  delivering “a number of significant ‘firsts,'” including offering the first Android handset and launching the first advanced HSPA+ network.

“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,” Sharis A. Pozen,  acting assistant attorney general in charge of the Department of Justice’s  antitrust division, said in a statement. “Unless this merger is blocked,  competition and innovation will be reduced, and consumers will suffer.”

Although Sprint and several lawmakers who have opposed the deal will be  pleased by the Justice Department’s suit, there are many that won’t be so happy.  In June, AT&T released a statement on the support it was receiving, saying that several prominent  organizations, including the AFL-CIO, Communications Workers of America, and the  NAACP, among others, believed the government should approve the deal.

“These groups and elected officials understand the extraordinary benefits of bringing high-speed wireless broadband to more than 97 percent of the U.S. population, or an additional 55 million more people,” AT&T said in a statement at the time. “From the most populated areas to large stretches of rural America, consumers will have access to new and innovative technologies and will benefit from increased network capacity and improved service.”

The company has also received support from several lawmakers, including 26  governors, 92 mayors, and 11 state attorneys general. Earlier this month, one of  the lawmakers supporting the deal, Rep. Lamar Smith (R-Texas), said that the  proposed merger would benefit consumers and help to create jobs.

Creating jobs was something that AT&T touted just hours before the Justice Department made its decision earlier today. In a statement, AT&T  said that its proposed merger with T-Mobile USA would create 5,000 call center jobs in the U.S. that are currently being outsourced in other  countries.

“At a time when many Americans are struggling and our economy faces  significant challenges, we’re pleased that the T-Mobile merger allows us to  bring 5,000 jobs back to the United States and significantly increase our  investment here,” AT&T CEO Randall Stephenson said in a statement. “This  merger and today’s commitment are good for our employees, our customers and our  country.”

But the Justice Department sees it a different way. It said that in its  review of the deal, it couldn’t find “any efficiencies that would be sufficient  to outweigh the transaction’s substantial adverse impact on competition and consumers.”

However, that doesn’t mean that the deal is officially scuttled. At this  point, the Justice Department has only filed a suit that AT&T plans to  oppose. The result could be a protracted court battle aimed at determining if  the deal actually would do more harm than good. In fact, AT&T told CNET  today that it plans 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 anticompetitive effects and we  intend to vigorously contest this matter in court,” Watts said.

The FCC sees ‘serious concerns’

But AT&T might need to worry about more than the Department of Justice.  The FCC has yet to make its final determination on the merger, but based on what the  organization’s chairman, Julius Genachowski, said today in a statement on the matter, the wireless carrier might be facing off with the FCC, as well.

“By filing suit today, the Justice Department has concluded that AT&T’s  acquisition of T-Mobile would substantially lessen competition in violation of the antitrust laws,” Genachowski said in a statement. “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,”  he continued. “Competition fosters consumer benefits, including more choices, better service and lower prices.”

Now that the Justice Department has made its decision, Sprint is quite pleased. In a statement, the company’s senior vice president of government affairs, Vonya B. McCann, said that the lawsuit is a “victory” for consumers.

“The DOJ today delivered a decisive victory for consumers, competition and our country,” McCann said. “By filing suit to block AT&T’s proposed takeover of T-Mobile, the DOJ has put consumers’ interests first. 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.”

T-Mobile has not responded to CNET’s request for comment.

AT&T’s shares are down around 4 percent at $28.34.

CNET – Don Reisinger

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