DOJ Sues to Stop ATandT, T-Mobile Merger

The Justice Department says the proposed merger between AT&T and T-Mobile would reduce competition, raise prices, lower innovation and hurt consumers.

The United States Department of Justice filed an antitrust lawsuit Aug. 31 that seeks to prevent the merger of AT&T and T-Mobile USA, a division of Deutsche Telekom. The proposed $39 billion merger would reduce competition for mobile wireless communications services across the United States, according to a statement provided by the Justice Department.

The DOJ statement added that the merger would result in higher prices, poorer quality services, fewer choices and less product innovation. The Justice Department filed the lawsuit in the U.S. District Court for the District of Columbia on Wednesday. This is the same court that oversaw the original breakup of AT&T.

Deputy Attorney General James Cole, in a prepared statement said, "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."

Acting Assistant Attorney General Sharis Pozen said that AT&T and T-Mobile compete head to head across the United States, and that T-Mobile has been an important source of competition among national carriers, especially in its roll-out of high-speed data services.

T-Mobile has been advertising that it has the largest and fastest 4G network in the United States.

Immediately following the announcement by the Justice Department, the Federal Communications Commission weighed in with an announcement by Chairman Julius Genachowski, who provided a prepared statement noting the FCC's concerns about the merger.

"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," Genachowski said in the 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. Competition fosters consumer benefits, including more choices, better service and lower prices."

In its announcement opposing the deal, the Justice Department quoted a number of T-Mobile documents that note the innovations in which that carrier led the industry, including Android phones, BlackBerry wireless email, national WiFi hotspot access, and business innovations such as finding niches and developing ways to provide access that take advantage of those market niches. The DOJ also noted T-Mobile's development of HSPA+ data technology.

The DOJ statement said the department's attorneys gave serious consideration to the claimed efficiencies of the proposed merger, but that officials concluded that AT&T had not demonstrated that any of those efficiencies would be sufficient to overcome the transaction's "substantial adverse impact on competition and consumers."

Instead, the DOJ noted that AT&T could realize all of the efficiencies it promised simply by investing in its own network.

The action is viewed by many as a huge blow to AT&T, which had expressed confidence that it would pass any regulatory hurdles. Indeed, just before the announcement, AT&T reported that its deal to buy T-Mobile would create about 5,000 jobs within the United States.

In AT&T's own statement on the DOJ's actions, Senior Executive Vice President and General Counsel Wayne Watts wrote that the company plans to ask for a hearing and will fight for approval of the T-Mobile deal.

"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," said Watts. "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 affects and we intend to vigorously contest this matter in court."

Whether this will be a fatal blow to the merger remains to be seen as the Justice Department makes its next moves.

In addition to the Justice Department and the FCC, the AT&T and T-Mobile deal faces opposition from the two companies' competition, especially Sprint. In an Aug. 31 statement, Sprint noted: "The DOJ today delivered a decisive victory for consumers, competition and our country. By filing suit to block AT&T's proposed takeover of T-Mobile, the DOJ has put consumers' interests first."