US DoJ moves to block AT&T/T-Mobile deal

The US department of Justice has filed a civil antitrust lawsuit in a bid to block AT&T’s proposed $39bn acquisition of T-Mobile’s US operation, claiming that the deal would “substantially lessen competition” in the US wireless sector. If successful, said Deputy Attorney General James M. Cole, the move would result in higher prices and lower quality for consumers.

The deal was announced in March this year and would see second placed AT&T propelled past market leader Verizon to first place and a share of the US mobile market greater than 40 per cent. The latest figures from Informa’s WCIS Plus service show AT&T with 98.6 million customers and T-Mobile USA with 33.1 million. The combined total of 131.7 million far outstrips Verizon on 106 million customers.

Cole said that T-Mobile has until now served as a competitive force in the market and that if it were to be absorbed into AT&T, the absence of that force would be keenly felt. “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,” he said.

T-Mobile has racked up a number of market firsts in the US, including the first Blackberry email service, the first Android handset, a nationwide wifi hotpsot network and a number of innovative pricing bundles, the DoJ said, making its ongoing autonomy essential to the market. However, the fact that Deutsche Telekom has been known for some time to be looking to offload its US operation, suggests that those innovations may have proven unsustainable.

“Unless this merger is blocked,” said Sharis Pozen, who heads up the DoJ’s Antitrust Division, “competition and innovation will be reduced and consumers will suffer.”

Ovum chief analyst Jan Dawson, said: “At the very least, this will now create a massive uphill battle for AT&T in consummating its merger, and will create significant delays. At worst, it will prevent the merger from happening entirely, which will result in a massive breakup fee of several billion dollars and various other concessions on the part of AT&T. The uncertainty created in the meantime poses several very difficult decisions for AT&T, especially in terms of network investments. It will have to decide whether to press ahead with its own LTE rollout on the assumption that T-Mobile’s network assets and spectrum will eventually be part of it, or whether to pursue another strategy for rolling out 4G.”

All this is happening at precisely the time when AT&T needs to accelerate its 4G rollout to keep up with Verizon, Sprint and others who are much further ahead. One option AT&T should immediately pursue is a network-sharing arrangement with T-Mobile along the lines of similar deals we’ve seen in Europe and elsewhere. This would provide some of the same benefits without raising as many concerns on the part of the federal government, and would arguably have been a better strategy from the outset given the inherent risks involved in such a major acquisition, Dawson said.