NPI's Cascadia Advocate

Offering commentary and analysis from Washington, Oregon, and Idaho, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Wednesday, August 31st, 2011

U.S. Department of Justice files suit to block AT&T/T‑Mobile merger

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.

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