AT&T, T-Mobile Merger Threatened by DoJ Antitrust Complaint [U.S. Government Files Antitrust Complaint Alleging Deal Will Be Anti-Competitive]

Posted on TFTS by J. Angelo Racoma on Wednesday, 31. August 2011 under: Mobile/Cell Phones, News in Brief

The much-anticipated major opposition to the AT&T and T-Mobile merger has finally happened. The U.S. government is suing to block the $39 billion acquisition deal, saying the move will “substantially lessen competition” in the mobile industry.

When AT&T and T-Mobile announced their planned acquisition deal, the move was much-criticized by several factions, including customers, lawmakers, and competitors alike. While already approved by both companies’ corporate boards, the actual due diligence process was expected to take about a year to complete. But with government blocking the deal, AT&T and T-Mobile will have bigger challenges ahead.

Anti-Competitive

The complaint, filed by the Department of Justice in a Washington federal court, claims that the $39 billion deal would be in violation of the U.S. anti-trust laws. As such, government has requested for a court order against the merger.

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.

Should the courts agree with the lawsuit, AT&T would be in big trouble. Their agreement with T-Mobile includes a rejection clause stipulating that AT&T will have to pay certain concessions to T-Mobile in case the deal does not push through. For one, AT&T will have to pay Deutsche Telekom (which owns T-Mobile) $3 billion in cash. The company would also have to provide T-Mobile with wireless spectrum in certain regions and reduced access rates to its facilities.

Will AT&T Fight Back?

With the hefty cancellation fee, AT&T will have a big incentive to fight back against the DoJ’s lawsuit. The company will have to stand by its economic and financial projections that a merger with T-Mobile should be in the best interests of customers, as it would improve network efficiency, reduce costs and increase the quality of service, as AT&T proposes.

AT&T shares have fallen as much as 5% since the news broke, and while neither AT&T, the DoJ nor T-Mobile has provided comments, the Federal Communications Commission has issued a statement.

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

We predict that this will be a hotly-debated topic in the next coming days, so we’ll keep you posted on updates, particularly AT&T’s official response to the lawsuit announcement.