The United States Department of Justice has filed an antitrust complaint seeking to block the AT&T / T-Mobile merger, as first reported by Bloomberg this morning. According to Deputy Attorney General James M. Cole, "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." The DOJ says that T-Mobile's low prices and innovative products have been a "disruptive force" in the industry by being the first to offer BlackBerry devices, the Sidekick, Android devices, unlimited service plans, and nationwide Wi-Fi. As a result, the DOJ says that "AT&T’s elimination of T-Mobile as an independent, low- priced rival would remove a significant competitive force from the market."
The DOJ also says it seriously considered AT&T's claim that T-Mobile's spectrum would help it build out broader LTE coverage more quickly and ultimately decided that the potential impact on competition wasn't worth it. What's more, the DOJ dismissed AT&T's claims that a buyout was the only option to boost its network, saying "AT&T could obtain substantially the same network enhancements that it claims will come from the transaction if it simply invested in its own network without eliminating a close competitor."
AT&T General Counsel Wayne Watts says the carrier is "surprised and disappointed" by the move, and that "there was no indication from the DOJ" that it would file to block the merger. Watts also says AT&T intends to file for an expedited hearing and "vigorously contest this matter in court" -- the only real option for the carrier at this juncture, as it had previously agreed to pay T-Mobile a massive $6b fee in cash and spectrum if the merger doesn't go through. Watts also says AT&T is "confident that this merger is in the best interest of consumers and our country," and that the burden rests on the DOJ to prove any anti-competitive impact.
Update: We just received an official statement from FCC chairman Julius Genachowski -- he says that the FCC also has "serious concerns" about the merger affecting wireless competition:
By filing suit today, the Department of Justice has concluded that AT&T's acquisition of T-Mobile would substantially lessen competition in violation of the antitrust laws. 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. Competition fosters consumer benefits, including more choices, better service and lower prices.
That doesn't bode well for AT&T -- it's possible it'll have a two-way fight on its hands very soon. Read the DOJ's full press release after the break, as well as AT&T's statement.
Update 2: Sprint says the DOJ's action is a "decisive victory for consumers." It's also a victory for Sprint, which has been campaigning nonstop against the merger since it was first announced. We've added Sprint's full statement after the break as well.
Update 3: And now Deutsche Telekom is chiming in, which stands to receive $39b in the event the acquisition goes through. Needless to say, they're not happy, saying they're "very disappointed" with today's move and that they "appreciate the DOJ's willingness to discuss possible remedies to address the competitive concerns." See the full statement after the break.
Source: DOJ filing (PDF), Bloomberg, WSJ's Anupreeta Das (Twitter), T-Mobile
Justice Department Files Antitrust Lawsuit to Block AT&T’s Acquisition of T-Mobile
Transaction Would Reduce Competition in Mobile Wireless Telecommunications Services, Resulting in Higher Prices, Poorer Quality Services, Fewer Choices and Fewer Innovative Products for Millions of American Consumers
WASHINGTON – The Department of Justice today filed a civil antitrust lawsuit to block AT&T Inc.’s proposed acquisition of T-Mobile USA Inc. The department said that the proposed $39 billion transaction would substantially lessen competition for mobile wireless telecommunications services across the United States, resulting in 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 department’s lawsuit, filed in U.S. District Court for the District of Columbia, seeks to prevent AT&T from acquiring T-Mobile from Deutsche Telekom AG.
"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," said Deputy Attorney General James M. Cole. "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."
"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," said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. "Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer."
Mobile wireless telecommunications services play a critical role in the way Americans live and work, with more than 300 million feature phones, smart phones, data cards, tablets and other mobile wireless devices in service today. Four nationwide providers of these services – AT&T, T-Mobile, Sprint and Verizon – account for more than 90 percent of mobile wireless connections. The proposed acquisition would combine two of those four, eliminating from the market T-Mobile, a firm that historically has been a value provider, offering particularly aggressive pricing.
According to the complaint, AT&T and T-Mobile compete head to head nationwide, including in 97 of the nation’s largest 100 cellular marketing areas. They also compete nationwide to attract business and government customers. AT&T’s acquisition of T-Mobile would eliminate a company that has been a disruptive force through low pricing and innovation by competing aggressively in the mobile wireless telecommunications services marketplace.
The complaint cites a T-Mobile document in which T-Mobile explains that it has been responsible for a number of significant "firsts" in the U.S. mobile wireless industry, including the first handset using the Android operating system, Blackberry wireless email, the Sidekick, national Wi-Fi "hotspot" access, and a variety of unlimited service plans. T-Mobile was also the first company to roll out a nationwide high-speed data network based on advanced HSPA+ (High-Speed Packet Access) technology. The complaint states that by January 2011, an AT&T employee was observing that "[T-Mobile] was first to have HSPA+ devices in their portfolio…we added them in reaction to potential loss of speed claims."
The complaint details other ways that AT&T felt competitive pressure from T-Mobile. The complaint quotes T-Mobile documents describing the company’s important role in the market:
- T-Mobile sees itself as "the No. 1 value challenger of the established big guys in the market and as well positioned in a consolidated 4-player national market"; and
- 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. Our approach to market will not be conventional, and we will push to the boundaries where possible. . . . [T-Mobile] will champion the customer and break down industry barriers with innovations. . . ."
The complaint also states that regional providers face significant competitive limitations, largely stemming from their lack of national networks, and are therefore limited in their ability to compete with the four national carriers. And, the department said that any potential entry from a new mobile wireless telecommunications services provider would be unable to offset the transaction’s anticompetitive effects because it would be difficult, time-consuming and expensive, requiring spectrum licenses and the construction of a network.
The department said that it gave serious consideration to the efficiencies that the merging parties claim would result from the transaction. The department concluded AT&T had not demonstrated that the proposed transaction promised any efficiencies that would be sufficient to outweigh the transaction’s substantial adverse impact on competition and consumers. Moreover, the department said that AT&T could obtain substantially the same network enhancements that it claims will come from the transaction if it simply invested in its own network without eliminating a close competitor.
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.
We plan 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 anti-competitive affects and we intend to vigorously contest this matter in court.
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% of the population;
· Result in billions of additional investment and tens of thousands of jobs, at a time when our nation needs them most.
We remain confident that this merger is in the best interest of consumers and our country, and the facts will prevail in court.
The DOJ today 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. 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.
Deutsche Telekom Statement
On August 31, 2011, the United States Department of Justice (DOJ) informed Deutsche Telekom that it will file a complaint in the U.S. District Court for the District of Columbia seeking a permanent injunction blocking the proposed stock purchase agreement between AT&T and Deutsche Telekom under which AT&T will acquire T-Mobile USA from Deutsche Telekom.
Deutsche Telekom is very disappointed by the DOJ's action, and will join AT&T in defending the contemplated merger against the complaint in court. DOJ failed to acknowledge the robust competition in the U.S. wireless telecommunications industry and the tremendous efficiencies associated with the proposed transaction, which would lead to significant customer, shareholder, and public benefits. We appreciate the DOJ's willingness to discuss possible remedies to address the competitive concerns.