The San Juan Weekly Star
Sept. 8 - 14, 2011
27
U.S. Moves to Block Merger Between AT&T and T-Mobile By EDWARD WYATT
T
he Justice Department filed a lawsuit 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 TMobile 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. Those arguments include the assertion that a combination that took the number of nationwide wireless phone providers down to three from four would harm competition, because the four nationwide service providers already account for more than 90 percent of the mobile wireless connections nationwide. The proposed merger has been a topic of robust debate in Congress, where both houses have conducted committee hearings on the merger. At one of them in May, Randall L. Stephenson, the chief executive of AT&T, tried largely unsuccessfully to convince lawmakers that AT&T and T-Mobile should not even be considered as competitors. In subsequent congressional appearances, he abandoned that assertion, going back to the company’s main talking point: While the two companies are competitors, plenty of other competition exists in local wireless markets, with most potential customers having a choice among at least five providers. “Certain critics may attempt to create a myth that only a few national competitors exist, but wireless competition occurs primarily on the local level,” Mr. Stephenson said.
But the Justice Department, in its filing in the United States District Court for the District of Columbia, cited AT&T’s own arguments in earlier merger cases in favor of national competition. “As AT&T acknowledged less than three years ago during a merger proceeding, it aims to ‘develop its rate plans, features and prices in response to competitive conditions and offerings at the national levels — primarily the plans offered by the other national carriers,’ ” the Justice Department said in its lawsuit. “As AT&T recognized, ‘the predominant forces driving competition among wireless carriers operate at the national level.’ That remains the case today.” The F.C.C. is also reviewing the proposed merger, considering how competition and the public interest would be affected by the transfer of licenses for wireless airwaves that the merger would entail. “Competition is an essential component of the F.C.C.’s statutory public interest analysis,” said Julius Genachowski, the F.C.C. chairman, in a statement. “Although our process is not complete, the record before this agency also raises serious concerns about the impact of the proposed transaction on competition.” Both the F.C.C. and the Justice Department have to approve the merger, and they usually coordinate their independent reviews in a way that results in the same conclusion. For an antitrust case to fully wind its way through the court system could take years, maybe more than a decade. But AT&T would have to weigh the cost of that action against what it might cost it to get out of the T-Mobile deal. The F.C.C. and the Justice Department have different standards by which they weigh the merger. The F.C.C. must consider whether a deal is in the public interest, given the public assets – wireless airwaves, or spectrum – that would be transferred from one company to another. The Justice Department must determine whether a deal violates the federal antitrust statutes, which focus on whether a merger substantially reduces competition.