Justice Dept. to block AT&T's T-Mobile deal

In its lawsuit, the federal government says the deal would hurt competition and reduce innovation in the wireless industry.

Don Reisinger
Former CNET contributor Don Reisinger is a technology columnist who has covered everything from HDTVs to computers to Flowbee Haircut Systems. Besides his work with CNET, Don's work has been featured in a variety of other publications including PC World and a host of Ziff-Davis publications.
Don Reisinger
6 min read

The U.S. Department of Justice has filed suit in a federal court in Washington, D.C., to block AT&T's proposed takeover of T-Mobile USA.

The Justice Department said today in its filing with the U.S. District Court for the District of Columbia that the deal would "substantially lessen competition" in the wireless industry, and thus, should be blocked from approval. The lawsuit went on to say that the deal could potentially cause "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 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," Deputy Attorney General James M. Cole said in a statement announcing the decision. "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."

AT&T came out quickly against the Justice Department's decision. In an e-mailed statement to CNET, the company's senior executive vice president and general counsel, Wayne Watts, said that the company was blindsided by the Justice Department's decision.

Related stories:
Why the DOJ means business on AT&T and T-Mobile
The Justice Department's lawsuit (PDF)
DOJ's statement regarding AT&T and T-Mobile
AT&T to acquire T-Mobile USA for $39 billion
AT&T and T-Mobile: Wireless megamerger (roundup)

"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," Watts said. "At the end of the day, we believe facts will guide any final decision and the facts are clear. This merger will help solve our nation's spectrum exhaust situation and improve wireless service for millions; allow AT&T to expand 4G mobile broadband to another 55 million Americans, or 97 percent of the population; [and] result in billions of additional investment and tens of thousands of jobs, at a time when our nation needs them most."

Bloomberg was first to report on the news.

Earlier this year, AT&T announced its plans to acquire T-Mobile USA from Deutsche Telekom in a deal valued at $39 billion. As soon as the deal was announced, critics chimed in, saying that it could stifle competition in the marketplace and ultimately hurt both consumers and competitors. Sprint, which could be dwarfed by the combined AT&T and T-Mobile, was especially outspoken about the deal, saying that it would fight it to the end.

"Sprint urges the United States government to block this anticompetitive acquisition," the company said in a statement following the announcement of the deal. "This transaction will harm consumers and harm competition at a time when this country can least afford it. So on behalf of our customers, our industry, and our country, Sprint will fight this attempt by AT&T to undo the progress of the past 25 years and create a new Ma Bell duopoly."

Although the merger faced criticism, both the Federal Communications Commission and the Department of Justice continued their review of the deal, and were expected to make their decision on the merger early next year. The fact that the Justice Department has already filed a petition against the merger is somewhat of a surprise.

T-Mobile as a 'disruptive force'
The Justice Department's problems with the merger go beyond concerns over pricing and competition. The agency said in a statement today that T-Mobile has proven to be "a disruptive force" in the wireless industry, delivering "a number of significant 'firsts,'" including offering the first Android handset and launching the first advanced HSPA+ network.

"T-Mobile has been an important source of competition among the national carriers, including through innovation and quality enhancements such as the roll-out of the first nationwide high-speed data network," Sharis A. Pozen, acting assistant attorney general in charge of the Department of Justice's antitrust division, said in a statement. "Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer."

"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."
--Deputy Attorney General
James M. Cole

Although Sprint and several lawmakers who have opposed the deal will be pleased by the Justice Department's suit, there are many that won't be so happy. In June, AT&T released a statement on the support it was receiving, saying that several prominent organizations, including the AFL-CIO, Communications Workers of America, and the NAACP, among others, believed the government should approve the deal.

"These groups and elected officials understand the extraordinary benefits of bringing high-speed wireless broadband to more than 97 percent of the U.S. population, or an additional 55 million more people," AT&T said in a statement at the time. "From the most populated areas to large stretches of rural America, consumers will have access to new and innovative technologies and will benefit from increased network capacity and improved service."

The company has also received support from a number of lawmakers, including 26 governors, 92 mayors, and 11 state attorneys general. Earlier this month, one of the lawmakers supporting the deal, Rep. Lamar Smith (R-Texas), said that the proposed merger would benefit consumers and help to create jobs.

Creating jobs was something that AT&T touted just hours before the Justice Department made its decision earlier today. In a statement, AT&T said that its proposed merger with T-Mobile USA would create 5,000 call center jobs in the U.S. that are currently being outsourced in other countries.

"At a time when many Americans are struggling and our economy faces significant challenges, we're pleased that the T-Mobile merger allows us to bring 5,000 jobs back to the United States and significantly increase our investment here," AT&T CEO Randall Stephenson said in a statement. "This merger and today's commitment are good for our employees, our customers and our country."

The Justice Department sees it differently. It said that in its review of the deal, it couldn't find "any efficiencies that would be sufficient to outweigh the transaction's substantial adverse impact on competition and consumers."

But that doesn't mean that the deal is officially scuttled. At this point, the Justice Department has only filed a suit that AT&T plans to oppose. The result could be a protracted court battle aimed at determining if the deal actually would do more harm than good. In fact, AT&T told CNET today that it plans 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 anticompetitive effects and we intend to vigorously contest this matter in court," Watts said.

The FCC sees 'serious concerns'
But AT&T might need to worry about more than the Department of Justice. The FCC has yet to make its final determination on the merger, but based on what the organization's chairman, Julius Genachowski, said today in a statement on the matter, the wireless carrier might be facing off with the FCC as well.

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

Now that the Justice Department has made its decision, Sprint reacted favorably. In a statement, the company's senior vice president of government affairs, Vonya B. McCann, said that the lawsuit is a "victory" for consumers.

"The DOJ today delivered a decisive victory for consumers, competition and our country," McCann said. "By filing suit to block AT&T's proposed takeover of T-Mobile, the DOJ has put consumers' interests first. Sprint applauds the DOJ for conducting a careful and thorough review and for reaching a just decision--one which will ensure that consumers continue to reap the benefits of a competitive U.S. wireless industry. Contrary to AT&T's assertions, today's action will preserve American jobs, strengthen the American economy, and encourage innovation."

T-Mobile has not responded to CNET's request for comment.

AT&T's shares were down around 4 percent at $28.34 at midday.

Updated throughout the morning with additional details and Sprint's statement.