Justice Department Moves to Block Merger Between AT&T and T-Mobile
The United States Justice Department has recently filed a lawsuit to block the merger between AT&T and T-Mobile on the grounds of antitrust laws. The Justice Department has stated that a merger between the third and fourth largest mobile technology companies would create substantially less competition and cause all of the problems associated with a monopoly. While this poses a problem for the companies, consumer advocacy groups are championing the decision saying that keeping the companies separate will keep prices down as well keeping new innovations up because of competition- a huge contributing factor to successful free market companies.
By EDWARD WYATT
The Justice Department filed a lawsuit on Wednesday to block the proposed $39 billion merger between AT&T and T-Mobile USA on antitrust grounds, saying a deal between the nation’s second- and fourth-largest wireless phone carriers would substantially lessen competition, result in higher prices and give consumers fewer innovative products.
The lawsuit sets up the most substantial antitrust battle since the election of President Obama, who campaigned with promises to revitalize the Justice Department’s policing of mergers and their effects on competition, which he said declined significantly under the Bush administration.
AT&T said it would fight the lawsuit. “We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed,” the company said in a statement. “The D.O.J. has the burden of proving alleged anti-competitive effects and we intend to vigorously contest this matter in court.”
AT&T said it had no warning that the government was going to file to block the merger, because it has been actively involved in discussions with both the Justice Department and the Federal Communications Commission since the proposal was announced in March. AT&T has indicated that it would consider some divestitures or other business actions to allow the deal to go forward.
But Justice Department officials said that those discussions led it to believe that it would difficult to arrange conditions under which the merger could proceed. “Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer,” said Sharis A. Pozen, acting assistant attorney general in charge of the Justice Department’s antitrust division.
The Justice Department has broad authority to influence proposed deals. On rare occasions, the agency takes the aggressive step of suing to block a deal altogether, as it is doing with AT&T and did earlier this year with H&R Block’s bid for the owner of TaxAct tax preparation software.
Sometimes just the threat of legal action is enough to stymie a deal, as in May when Nasdaq dropped its rival bid for the New York Stock Exchange’s parent company. In other cases, the Justice Department will remain silent, blessing a deal by default.
AT&T’s promise to fight the suit could mean a potentially lengthy fight.
Consumer advocacy groups cheered the announcement. “This announcement is something for consumers to celebrate,” said Parul P. Desai, policy counsel for Consumers Union. “We have consistently warned that eliminating T-Mobile as a low-cost option will raise prices, lower choices and turn the cellular market into a duopoly controlled by AT&T and Verizon.”
Harold Feld, legal director of Public Knowledge, a nonprofit group, said, “Fighting this job-killing merger is the best Labor Day present anyone can give the American people.” But labor groups had generally supported the merger, in part because a substantial number of AT&T employees are members of the Communications Workers of America, while T-Mobile is a largely nonunion company.
Deputy Attorney General James M. Cole said the department decided that among those adversely affected would be wireless customers in rural areas and those with lower incomes. He said he also believed that an independent T-Mobile would be more likely to expand its business and add jobs, while mergers often result in the elimination of jobs.
The future of an independent T-Mobile is more of a question today, however, than before the merger with AT&T was announced. Its parent company, Deutsche Telekom, has said it does not want to continue to invest in the American wireless market, preferring to focus on the growth of its telecommunications business in Europe.
Before AT&T announced its intention to buy T-Mobile, there was consistent speculation in the wireless industry that a merger between T-Mobile and Sprint Nextel, the third-largest provider, was in the works. But such a deal looks unlikely in light of the arguments mustered by the Justice Department against the AT&T deal.
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