AT&T’s heavy lobbying of the U.S. government to allow its $39 billion acquisition of T-Mobile does not seem to have worked. The U.S. Department of Justice has filed a lawsuit seeking to block the merger, citing anti-competitive forces.
A copy of the complaint was not immediately available through the court filing system, but Bloomberg reported that the DOJ felt the merger would “substantially lessen competition.” AT&T (NYSE: T), the second-largest wireless carrier in the U.S., proposed the huge deal in March on the eve of the CTIA wireless trade association’s annual gathering in what would create the largest carrier in the country. T-Mobile, with 33 million customers at the end of the last quarter, is the fourth-largest carrier in the country.
Critics (including this one) have argued almost since the day the deal was proposed that it would consolidate an enormous amount of power in a company that is mostly known for high prices and poor network service. The deal has also been seen as a precursor to further consolidation in the wireless market, given that Verizon would be likely to retaliate by purchasing debt-laden Sprint (NYSE: S) to up its subscribers numbers.
In a press release, the DOJ 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.”
But AT&T believes the deal will allow it to build a much more comprehensive 4G network in rural parts of the U.S. with the spectrum it would obtain from T-Mobile, and has downplayed the anti-competitive aspects of the deal. On Tuesday, it announced that it would bring 5,000 call center jobs back to the U.S. if the deal went through, and promised not to cut any existing U.S. call center jobs at either carrier. It has also sought to portray its fellow wireless carriers as extremely ferocious competitors, despite the fact that practically all of them save Verizon are current losing money.
The DOJ swatted at those arguments in its press release.
“The department concluded AT&T had not demonstrated that the proposed transaction promised any efficiencies that would be sufficient to outweigh the transaction’s substantial adverse impact on competition and consumers. Moreover, the department said that AT&T could obtain substantially the same network enhancements that it claims will come from the transaction if it simply invested in its own network without eliminating a close competitor.”
In a statement issued after the lawsuit was filed, AT&T’s Wayne Watts, senior executive vice president and general counsel, pledged to defend the proposed acquisition. “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. We plan 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 anti-competitive effects and we intend to vigorously contest this matter in court.”
The news is probably most welcome to Sprint, which has fought hard against the proposed acquisition and probably stands to lose the most if it were to go through. It’s stock rose over 9 percent on news of the lawsuit, while AT&T’s fell nearly 5 percent in the first hour after the lawsuit was announced.
“The DOJ today delivered a decisive victory for consumers, competition and our country,” Sprint’s Vonya McCann, senior vice president of government affairs, said in a statement.
But the lawsuit doesn’t necessarily mean the deal is dead. AT&T could settle the lawsuit with the DOJ by agreeing to conditions on the deal, by spinning off assets or agreeing to exit certain markets. Robert McDowell, a commissioner with the Federal Communications Commission, has said that he favors imposing conditions on the deal, and AT&T CEO Randall Stephenson has signaled that he may be open to compromising on certain issues.
After news of the DOJ’s lawsuit broke, FCC chairman Julius Genachowski issued 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.”
A copy of the DOJ’s complaint follows below, and can also be accessed here: