This news may come as as a nasty shock to Wall Street (which is used to sweet-talking regulators into getting what it wants) but to us, it is a very pleasant and welcome surprise:
The Department of Justice today filed a civil antitrust lawsuit to block AT&T Inc.’s proposed acquisition of T-Mobile USA Inc. The department said that 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.
The department’s lawsuit, filed in U.S. District Court for the District of Columbia, seeks to prevent AT&T from acquiring T-Mobile from Deutsche Telekom AG.
“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,” said Deputy Attorney General James M. Cole. “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.”
That is precisely the point we made when the deal was announced. Allowing AT&T to gobble up T-Mobile would reduce competition and leave the remaining smaller nationwide carrier (Sprint) vulnerable to a takeover, presumably by Verizon. That would result in only two carriers with nearly one hundred percent market share between them. An oligopoly market would become a duopoly market.
AT&T isn’t trying to acquire T-Mobile because it thinks the acquisition would be good for its customers (though it has made that claim in its marketing). The real point of the acquisition is to eliminate a competitor.
If T-Mobile disappears, that leaves AT&T as the only coast-to-coast GSM carrier (Verizon and Sprint use the CDMA family of wireless protocols). This is what AT&T wants, but it would be bad for consumers.
Craig Aaron, who serves as President & CEO of our ally Free Press, commended the Department of Justice for taking action to block the merger.
“It’s encouraging to see that federal regulators have not been snowed by AT&T’s promises and bluster,” he said in a statement.
“Its smoke-and-mirrors effort was a good front for a while, but when you get down to the facts of the matter, this was a bad idea from the start, and no amount of corporate spin can overcome that reality.
“AT&T has already invested untold millions in lobbying and campaign contributions, and it is going to play every card in the deck to try to get this merger done. Free Press and our network of 500,000 activists will continue to oppose it. But we hope instead that AT&T will drop this disastrous deal and invest in expanding its network and improving its woeful customer service.”
“Fighting this job-killing merger is the best Labor Day present anyone can give the American people,” added Public Knowledge Legal Director Harold Feld. “AT&T’s effort to recreate ‘Ma Cell’ by holding rural broadband hostage and threatening American jobs deserves nothing but scorn. The FCC should move as quickly as possible to follow the lead of the Department of Justice and reject the merger.”
Federal Communications Chairman Julius Genachowski hinted the FCC may do just that in his own 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,” he said in a statement.
If the deal does not go through, AT&T will owe T-Mobile’s parent company upwards of a $6 billion penalty. So we can expect that AT&T and its lawyers will do all they can to persuade the courts that their acquisition should be approved. But they’re going to have a hard time trying to prevail against the U.S. government. The Department of Justice does not rarely file suit to block mergers. It would not have done so in this instance if Attorney General Eric Holder and his team didn’t have a compelling case to make against the acquisition.
We look forward to seeing this ill-conceived acquisition get scuttled.