The U.S. government sued to block AT&T Inc.'s proposed $39 billion acquisition of T-Mobile USA Inc., saying the deal would "substantially lessen competition" in the wireless market. AT&T shares fell as much as 5% as result.
In short, the Justice Department has found that the deal -- which would combine the No. 2 and No. 4 U.S. carriers to create the biggest carrier -- would mean higher prices, lower quality products and less competition. The complaint filed against the two companies cites T-Mobile's current, "scrappy" position in the market. As the smallest of the national providers, T-Mobile competes with the big guys through lower-price and unlimited plans.
"AT&T's elimination of T-Mobile as an independent, low-priced rival would remove a significant competitive force from the market," the U.S. said in its filing.
The deal would also consolidate some of the biggest U.S. ad budgets: last year, AT&T was the country's third-largest spender with $2.11 billion in measured media. Combined U.S. measured media spending in 2010 for AT&T and T-Mobile comes out to $2.7 billion, according to Kantar Media. T-Mobile spent upwards of $500 million in that period.
In the complaint filed today in federal court in Washington, the U.S. is seeking a declaration that Dallas-based AT&T's takeover of T-Mobile, a unit of Deutsche Telekom AG, would violate U.S. antitrust law. The U.S. also asked for a court order blocking any arrangement implementing the deal.
Should regulators reject the deal, AT&T would have to pay Deutsche Telekom $3 billion in cash. It would also provide T-Mobile USA with wireless spectrum in some regions and reduced charges for calls into AT&T's network, for a total package valued at as much as $7 billion, Deutsche Telekom said this month. Philipp Schindera, a spokesman at Bonn-based Deutsche Telekom, declined to immediately comment on the filing. Jessica Smith, a Justice Department spokeswoman, declined to comment on the suit. Michael Balmoris, an AT&T spokesman, didn't immediately respond to an e-mail and phone calls seeking comment.
AT&T's purchase of Bellevue, Washington-based T-Mobile would create a new market leader ahead of No. 1 Verizon Wireless. The new company would have dwarfed current No. 3 carrier Sprint Nextel Corp., which has been extremely vocal in both public filings and marketing against the deal.
Some U.S. lawmakers have said the deal may reduce competition and raise consumer costs. The Federal Communications Commission has given itself more time to study new data presented by AT&T.
AT&T said the merger would lower prices and increase service in large metropolitan markets, lessen strains on the company's wireless network, lower costs and increase quality, in a July 25 filing at the FCC. "Given the size of the cancellation fee that was negotiated into his agreement, AT&T has the incentive to fight," said Andrew Gavil, a law professor at Howard University in Washington. "The fact that the Justice Department is challenging the deal doesn't mean they won't negotiate a resolution at some point."