Justice Department Blocks AT&T-T-Mobile Merger

Government sues to block AT&T, T-Mobile merger

By Joelle Tessler and Pete Yost
|  Wednesday, Aug 31, 2011  |  Updated 2:18 PM CDT
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DOJ Blocks AT&T-T-Mobile Merger

Getty Images for T-Mobile

MEDFORD, MA -MARCH 15: General view of atmosphere as Boston Celtic legend Cedric Maxwell does a meet and greet at the T-Mobile celebration of the partnership with Boston Celtics with Tip Off Tuesdays on March 15, 2011 at the T-Mobile store in Medford, Massachusetts. Guests tested out the latest 4G devices and experienced America's Largest 4G Network, and received tickets to Celtics games. (Darren McCollester/Getty Images for T-Mobile)

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The Justice Department filed suit Wednesday to block Dallas-based AT&T's $39 billion deal to buy T-Mobile USA on grounds that it would raise prices for consumers.

The government contends that the acquisition of the No. 4 wireless carrier in the country by No. 2 AT&T would reduce competition and that would lead to price increases.

At a news conference, Deputy Attorney General James Cole said the combination 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."

The lawsuit seeks to ensure that everyone can continue to receive the benefits of competition, said Cole.

AT&T said it would fight and ask for an expedited court hearing "so the enormous benefits of this merger can be fully reviewed." The company said the government "has the burden of proving alleged anti-competitive effects, and we intend to vigorously contest this matter in court."

Four nationwide providers -- Verizon, AT&T, T-Mobile and Sprint -- account for more than 90 percent of mobile wireless connections.

T-Mobile has been an important source of competition, including through innovation and quality enhancements such as the roll-out of the first nationwide high-speed data network, according to Sharis Pozen, acting chief of Justice's antitrust division.

Mobile wireless telecom services play an increasing role in day-to-day communications, with more than 300 million smart phones, data cards, tablets and other mobile wireless devices in use.

Deutsche Telekom, the owner of T-Mobile, had no immediate comment.

The proposed cash-and-stock transaction would catapult AT&T past Verizon Wireless to become the nation's largest wireless provider, and leave Sprint Nextel Corp. as a distant number three.

In a statement, Sprint said the Justice Department's lawsuit "delivered a decisive victory for consumers, competition and our country. By filing suit to block AT&T's proposed takeover of T-Mobile, the DOJ has put consumers' interests first."

AT&T and T-Mobile compete nationwide, in 97 of the largest 100 cellular marketing areas, according to the suit filed in U.S. District Court in Washington. They also vie for business and government customers.

The Justice Department suit says AT&T's acquisition of T-Mobile would eliminate a company that has been a competitive factor through low pricing and innovation. T-Mobile had the first handset using the Android operating system, Blackberry wireless email, the Sidekick smart phone, national Wi-Fi "hotspot" access and a variety of unlimited service plans.

In support of its case, the Justice Department quoted an unidentified AT&T employee on a competitive issue -- sophisticated wireless broadband devices that can provide high-speed data connections. The AT&T employee, said the lawsuit, noted that T-Mobile was first to have such devices in their portfolio and that "we added them in reaction to potential loss of speed claims."

Federal Communications Commission chairman Julius Genachowski said the record before the FCC "raises serious concerns about the impact of the proposed transaction on competition." The FCC's separate review of the proposed merger is not yet complete.

FCC member Michael Copps, a Democrat and a staunch opponent of industry consolidation, said that he shares "the concerns about competition and have numerous other concerns about the public interest effects of the proposed transaction, including consumer choice and innovation."

Democratic Sen. Herb Kohl of Wisconsin, who heads the Senate Judiciary subcommittee on antitrust, competition policy and consumer rights, said the suit was an effort to protect consumers "in a powerful and growing industry that reaches virtually every American."

The suit used some of T-Mobile's own documents describing its role in the market to explain why the merger shouldn't take place. In those documents, the company calls itself "the No. 1 challenger of the established big guys in the market and as well positioned in a consolidated 4-player national market."

T-Mobile said its strategy is to attack other companies and find innovative ways to overcome the fact that it is a smaller company.

T-Mobile "will be faster, more agile and scrappy, with diligence on decisions and costs both big and small," one company document said. "Our approach to market will not be conventional, and we will push to the boundaries where possible."

The suit also says the anti-competitive problems a merger would cause cannot be overcome by regional companies.

Regional companies lack national networks, so are limited in their ability to compete with the four national carriers, the lawsuit states.

More: Justice Department's Lawsuit

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