The Justice Department has made it clear how it feels about the AT&T–T-Mobile deal.
In a big blow to the deal's prospects, it has filed an antitrust lawsuit to block the deal, saying it would reduce competition in the wireless market, raise prices, reduce choices and hurt service.
In the wake of that suit, FCC Chairman Julius Genachowski said the record before the commission in its vetting of the deal raised serious concerns about competition.
AT&T Senior EVP and General Counsel Wayne Watts said in a statement he was "surprised and disappointed" in the suit, which he said came as a big surprise. "[W]e have met repeatedly with the Department of Justice and there was no indication from the DOJ that this action was being contemplated," he said. "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 anticompetitive effects and we intend to vigorously contest this matter in court."
AT&T has proposed paying $39 billion to buy T-Mobile, saying it would lead to better service and more advanced wireless while leaving sufficient national and regional competition. The deal would combine two of the four national carriers, the other being Verizon and Sprint. But critics have argued that would essentially create a duopoly with AT&T and Verizon controlling the majority of the market and eliminating a price competitor in T-Mobile. Justice agreed.
"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 in announcing the suit. "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."
Justice said it gave "serious consideration" to the efficiencies that AT&T said would result from the merger, but said they were "insufficient to outweigh the transaction's substantial adverse impact on competition and consumers." It also argued that AT&T could get the same benefits from investing in its own network rather than buying a "close competitor."
"AT&T's elimination of T-Mobile as an independent, low-priced rival would remove a significant competitive force from the market," Justice said in the suit, which was filed in the U.S. District Court for the District of Columbia. "Unless this acquisition is enjoined, customers of mobile wireless telecommunications services likely will face higher prices, less product variety and innovation, and poorer quality services due to reduced incentives to invest than would exist absent the merger."
Justice said it was clear that the two companies were head-to-head competitors, including in "97% of the nation's largest 100 cellular marketing areas," as well as nationally for business, including with the U.S. government. Justice said the suit was an effort to ensure it would continue to receive the benefits of that competition.
Among the evidence cited in the suit of why the deal would remove an innovative competitor are T-Mobile claims that it was the first to use an Android-powered handset, the first with Blackberry wireless e-mail and to offer a variety of unlimited service plans. It also cites an AT&T employee's observation that the company added faster devices in response to T-Mobile moves so as not to lose its speed claims.
And while AT&T said the merger would leave plenty of regional competition, Justice said that without national nets, regionals were limited.
"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," said Genachowski in a statement. "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."
Democratic Commissioner Michael Copps said he, too, had issues. "Today's announcement shows a Department of Justice taking its pro-competitive responsibilities seriously. I share the concerns about competition and have numerous other concerns about the public interest effects of the proposed transaction, including consumer choice and innovation."
Public interest law firm Media Access Project, which had been critical of the merger and filed an FCC challenge to it on behalf of several groups, said Justice's move should not raise any eyebrows. "This ought not to be a big surprise," said MAP SVP and Policy Director Andrew Jay Schwartzman. "This is arguably the most anti-competitive move in recent American economic history. It is heartening that the Department of Justice has withstood withering political pressure from AT&T to do the right thing for the American public."
"Fighting this job-killing merger is the best Labor Day present anyone can give the American people," said Harold Feld, legal director for Public Knowledge, which also opposed the deal. "AT&T's effort to recreate 'Ma Cell' by holding rural broadband hostage and threatening American jobs deserves nothing but scorn. The FCC should move as quickly as possible to follow the lead of the Department of Justice and reject the merger."