August 31, 2011, 11:50 AM — The U.S. Department of Justice has filed a lawsuit to block AT&T from acquiring mobile competitor T-Mobile USA, with the agency saying the $39 billion deal would significantly reduce competition, jack up prices and stifle innovation.
The DOJ lawsuit, filed Wednesday in U.S. District Court for the District of Columbia, points to T-Mobile USA's role as a low-cost competitor to the three other nationwide mobile carriers as a reason to block the deal.
"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 Cole said in a statement. "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."
AT&T is confident the company will prevail in court, said Wayne Watts, AT&T's senior executive vice president and general counsel.
AT&T plans to ask for an expedited court hearing "so the enormous benefits of this merger can be fully reviewed," Watts said in a statement. "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.
Earlier Wednesday, AT&T said it would bring back 5,000 outsourced call-center jobs to the U.S. if the deal was approved.
AT&T and T-Mobile, owned by Deutsche Telekom, compete head-to-head in 97 of the nation's 100 largest cellular marketing areas, the complaint said. The deal would eliminate T-Mobile as a "disruptive force" in the mobile industry through low prices and innovative services, the DOJ said in a press release.
T-Mobile offered the first smartphone using the Android OS, the first Blackberry wireless e-mail and the first national Wi-Fi hotspot access, the DOJ said. T-Mobile was the first U.S. company to roll out a nationwide data network based on advanced HSPA+ (High-Speed Packet Access) technology, the agency said.
AT&T felt competitive pressure from T-Mobile, and from its HSPA+ offering, Cole said.
T-Mobile sees itself as "the No. 1 value challenger of the established big guys in the market," according to company documents quoted in the DOJ complaint. T-Mobile's strategy is to "attack incumbents and find innovative ways to overcome scale disadvantages. [T-Mobile] will be faster, more agile, and scrappy, with diligence on decisions and costs both big and small," the documents added.
The DOJ looked seriously at the benefits AT&T and T-Mobile talked about, the agency said. AT&T did not demonstrate that the deal "promised any efficiencies that would be sufficient to outweigh the transaction's substantial adverse impact on competition and consumers," the DOJ said.
Critics have said the merger would reduce the number of nationwide mobile carriers from four to three and could lead to higher mobile service prices with low-cost competitor T-Mobile eliminated. AT&T could better use the $39 billion to build out and improve its existing network, critics have said.
AT&T has argued that the deal will allow the carrier to bring LTE (Long Term Evolution) mobile broadband service to 97% of the U.S., as opposed to 80% without the merger. T-Mobile executives have said they don't have the spectrum to offer LTE service without the merger. The merger will result in better mobile service, with fewer dropped calls and faster data speeds, AT&T has said.
The DOJ's opposition to the deal may not mean the merger is dead, said Jeff Kagan, an independent telecom analyst. "It can be renegotiated," he said. "I think the government is simply saying this deal, the way it is structured, will not be approved. So AT&T must change the structure and they will. They will reintroduce this deal and it will be under consideration again."
The DOJ's actions, however, strike a major blow to AT&T as it searches for ways to meet a growing demand for mobile spectrum, he said. "AT&T needs more capacity," he said. "However, this is the same problem every carrier has to deal with going forward. We need solutions."
One way to deal with the spectrum crunch caused by increased use of mobile data services would be for the U.S. Federal Communications Commission to take back mobile spectrum and let all carriers share it, Kagan said. Another approach would be to combine terrestrial and satellite services, as mobile broadband startup LightSquared has proposed, he said.
"Either way, we need to come together as a nation and an industry and come up with a real long term solution," he said.
