The Justice Department filed suit Wednesday to block AT&T's planned acquisition of T-Mobile, bringing into high relief the debate over whether corporations or consumers matter more as the U.S. struggles through an economic downturn.
AT&T has said that the proposed $39 billion merger between the nation's No.2 and No.4 mobile service providers is crucial to improving mobile services nationwide.
AT&T general counsel Wayne Watts said the carrier was "surprised and disappointed," and would seek a hearing so the "enormous benefits of this merger can be fully reviewed."
Consumer groups and some politicians worry about having just two dominant mobile players, AT&T and Verizon, with Sprint Nextel a distant third. If consummated, the deal "would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower-quality products for their mobile wireless services," says U.S. Deputy Attorney General James M. Cole.
Federal Communications Commission chief Julius Genachowski says though the FCC hasn't completed its review of the deal, the records it has seen also raise "serious concerns about the impact of the proposed transaction on competition."
AT&T maintains that absorbing T-Mobile would result in expansion of the best available mobile broadband technology to 55 million people, or 97% of the U.S. market. It has the backing of The Association for Competitive Technology, which represents 3,000 small- and midsize technology firms. "This is a profoundly misguided decision," Morgan Reed, ACT's executive director, says of the lawsuit.
AT&T made similar promises of improved services and pricing when it moved to acquire Cingular in 2004, "only to betray those promises" after securing federal approval, says Harvey Rosenfield, founder of the non-profit Consumer Watchdog advocacy group. "The last thing beleaguered American consumers need right now is higher prices and shoddier cellphone service," he adds. "That's exactly what would happen if AT&T was permitted to buy T-Mobile."
AT&T has agreed to pay T-Mobile a $3 billion break-up fee and provide it with services that could be worth billions more, if the deal falls through, notes Chenxi Wang, principal analyst at Forrester Research. "The DOJ is definitely on the path to block the acquisition," she says.
Another possibility: The parties could agree to a settlement, says Carrie MacGillivray, analyst at IDC. "There is still a chance the deal will go through if the Department of Justice can wring enough concessions out of AT&T," she says.
* MORE: Read the Justice Department's complaint: http://i.usatoday.net/money/_pdfs/11-0831-justice-att-tmobile-complaint.pdf
* MORE: Statement by U.S. deputy attorney general: http://www.justice.gov/iso/opa/dag/speeches/2011/dag-speech-110831.html
Ranking U.S. cellphone firms
The largest cellphone companies in the U.S., and the number of devices on their networks:
Verizon Wireless, 106.3 million
AT&T, 98.6 million
Sprint Nextel, 52.1 million
T-Mobile USA, 33.6 million
MetroPCS Comm., 9.1 million
U.S. Cellular, 6.0 million
Leap Wireless International, 5.7 million