Updated: After the Department of Justice surprised pretty much everyone by suing to stop AT&T from acquiring T-Mobile, the nation’s No. 2 carrier isn’t taking defeat lying down. It has vowed to fight the suit in a statement released this morning. That in itself is unusual; generally when the Department of Justice says no, companies walk away from their deal (such as when Direct TV walked away from DISH(s dish) back in 2002). But with $3 billion in cash and about $3 billion worth of spectrum on the table, AT&T (s t) is ready to fight.
From Wayne Watts, AT&T Senior Executive Vice President and General Counsel:
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 statement continues with AT&T’s assurances that this deal will help solve the nation’s spectrum exhaust situation, which has been refuted by those who understand that adding T-Mobile’s existing spectrum to AT&T’s existing spectrum does not magically make more spectrum. AT&T also reminded lawmakers that the deal will create billions in investments and more jobs. A detailed refutation of those claims can be found here.
A quick read of the complaint shows that the DOJ looked at the merger not at a local level as has historically been the case in wireless merger agreements, but with an eye toward how this affects wireless coverage across the nation. Significantly, it realized the value of mobile data and competition in nationwide mobile broadband access as a reason that this deal would be harmful.
So now, AT&T will fight this in court, but if a case is not determined by Sept. 2012, AT&T will owe T-Mobile the $3 billion breakup fee as well as forfeit some spectrum it has in the AWS band according to Chris King, an analyst with Stifel Nicolaus. As for timing, he wrote:
DOJ does not need to seek a preliminary injunction (which has a higher burden of proof) because the companies cannot close while the case is still pending at the FCC. We would be astonished if the FCC were to approve the deal while litigation is pending before the District Court. This means that the likely next step is a discovery schedule and a trial scheduled. The trial schedule depends on the district court’s schedule. If approval is not provided by September 2012, we understand that AT&T is required to make the breakup payment to T-Mobile.
So now it’s time to watch a court battle royale and start asking ourselves, what happens to T-Mobile if it gets an infusion of cash from a breakup fee and more spectrum? Also, some of us will be asking, “Where the heck was the FCC in all of this?” The statement from Chairman Julius Genachowski reads like someone who has been asked a tough question and then replies with, “Um, yeah, what she said.”
Update: Based on a blog post over at Public Knowledge, which is of course, happy about the DoJ’s action, AT&T’s willingness to fight may not matter, and the FCC’s seeming inaction here shouldn’t last.