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Justice Department sues to block AT&T, T-Mobile merger

WASHINGTON — The Justice Department took the unusual step Wednesday of trying to block AT&T's $39 billion purchase of T-Mobile USA, arguing that the proposed merger would lead to higher wireless prices, less innovation and fewer choices for consumers.

Now AT&T, the nation's No. 2 wireless carrier, and No. 4 T-Mobile are plotting a legal response to challenge federal regulators.

In its civil antitrust lawsuit, the Justice Department said the merger would stifle competition in the wireless industry. The deal, which is still under review at the Federal Communications Commission, would catapult AT&T past Verizon Wireless to become the nation's largest wireless carrier, leaving Sprint Nextel as a distant third-place player and certain to struggle.

AT&T quickly signaled that it won't abandon the transaction, leading to expectations of a fierce court battle.

AT&T has several incentives to take up a legal fight with regulators. In court, the burden is on the Justice Department — not AT&T — to show that the combination would harm competition. If the deal doesn't go through, the company will be forced to pay T-Mobile a $3 billion breakup fee.

AT&T said it will ask for an expedited court hearing. In a statement, T-Mobile's owner, the German company Deutsche Telekom, said it is disappointed by the Justice Department's action and "will join AT&T in defending the contemplated merger."

The companies, which if combined would have 132 million customers, could wage a strong defense in court.

Morgan Reed, executive director of the trade group, Association for Competitive Technology, said AT&T has at least one key fact on its side: Deutsche Telekom has said it does not plan to continue to invest in upgrading the T-Mobile network to deliver faster wireless. That means, "T-Mobile is not a competitor anymore," Reed said.

In addition, the Justice Department lawsuit portrays T-Mobile as having been a strong competitor in the past, but merger analysis is forward looking, said Washington lawyer Robert Bell, who has represented clients in mergers for over 25 years.

"To the extent AT&T can show there's good reason to believe that T-Mobile is going to be a very different kind of competitor in the future — for example, weaker financially, less innovative — then the lawsuit becomes quite a bit different," Bell said.

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.

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

T-Mobile had the first handset using the Android operating system, Blackberry wireless e-mail, the Sidekick smart phone, national Wi-Fi "hotspot" access and a variety of unlimited service plans.

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."

Federal Communications Commission chairman Julius Genachowski said the record before his agency "raises serious concerns about the impact of the proposed transaction on competition."

Although the FCC's separate review of the proposed merger is still ongoing, the agency has never approved a significant merger that is being challenged by the Justice Department.

What's the next move?

. AT&T has vowed to fight the Justice Department's lawsuit. The Justice Department and AT&T could also agree to a settlement, but some analysts say the fundamental nature of the Justice Department's objections would set a high hurdle. The Federal Communications Commission also is reviewing the proposed merger, and both the FCC and Justice Department have to approve it.

. Before AT&T announced its intention to buy T-Mobile, there was consistent speculation T-Mobile and Sprint Nextel, the third-largest provider, would merge. Such a deal could face the same objections as the AT&T deal.

.FAST FACTS

What does it mean for customers?

For now, the Justice Department suit means nothing for customers, says CNET News. For AT&T and T-Mobile subscribers, it's business as usual until the merger is formally approved or rejected. Even if the deal does happen, any changes wouldn't trickle down to T-Mobile or AT&T customers for a long time.

Justice Department sues to block AT&T, T-Mobile merger 08/31/11 [Last modified: Wednesday, August 31, 2011 10:48pm]
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