BREAKING: DoJ files lawsuit to block AT&T/T-Mobile USA deal

The U.S. Department of Justice filed a civil lawsuit to block AT&T Inc.’s (T) proposed $39 billion acquisition of T-Mobile USA Inc.
The DoJ said the deal 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.”
“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,” said Deputy Attorney General James Cole. “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 Pozen, acting Assistant Attorney General in charge of the DoJ’s Antitrust Division. “Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer.”
The DoJ noted documents from T-Mobile USA that showed the carrier has been responsible for a number of “firsts” in the mobile space, including the rollout of HSPA+ services that resulted in an AT&T employee claiming the carrier added such devices to its line up “in reaction to potential loss of speeds claims.”
“The [DoJ] 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,” the government agency noted. “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.”
This final comment appears linked to a leaked AT&T document that claimed the carrier would be able to match the 97% coverage of LTE services it claims it could reach with the $39 billion acquisition with just $3.8 billion in network investments using its current assets. The Federal Communications Commission last week had asked for and received additional documents from AT&T regarding that issue. Following the submission of those documents, the FCC said it had restarted its informal 180-day review of the deal.
FCC Commissioner Julius Genachowski noted that while the commission’s review of the deal is not yet complete, issues raised by the DoJ lawsuit do raise concerns about the acquisition.
“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,” Genachowski said in a statement. “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.”
Both the Rural Cellular Association and the Rural Telecommunications Group put out press releases praising the lawsuit as both have had long-standing beefs with the proposed acquisition.
Analysts noted the deal could be a big blow for AT&T, which has been looking to bolster its spectrum position through the acquisition, though it could still be saved with some restructuring.
“I don’t think this deal is dead. Not yet,” noted telecommunications industry analyst Jeff Kagan. “I think the government is simply saying this deal, the way it is structured will not be approved. So AT&T must change the structure and they will. They will reintroduce this deal and it will be under consideration again.”
Many had recently stated that they felt the deal would eventually be approved, though conditions on that approval were likely.
The deal being blocked could be a mixed bag for T-Mobile USA, which has been suffering competitively over the past several quarters, but is set to rake in a serious break-up fee if the deal is blocked. That fee is reported to include virtually all of AT&T’s 1.7/2.1 GHz spectrum holdings, which T-Mobile USA is currently using for its HSPA+ network, as well as a $3 billion fee and an automatic nationwide data roaming agreement. AT&T had been planning to use the 1.7/2.1 GHz spectrum to bolster its planned LTE deployment that would initially rely on its 700 MHz spectrum holdings.
With such an onerous penalty, it’s certain AT&T will do whatever it can to reconfigure the deal to meet DoJ requirements.
If the deal were to collapse, AT&T could be forced to look at spectrum alternatives, including a possible link up with either LightSquared or Clearwire Corp., which are looking to build out LTE networks and sell access on a wholesale basis. Another alternative for AT&T could be a deal with Dish Networks L.L.C., which has recently asked the FCC to allow a spectrum consolidation deal with TerreStar Network Inc. that could allow for a mobile broadband play.
News of the lawsuit sent AT&T’s stock down nearly 5% in early Wednesday trading, while Sprint Nextel Corp. (S), which is seen as the biggest victim of the deal, witnessed its stock price surge more than 6%. Sprint Nextel was rumored to be in talks regarding a possible merger with T-Mobile USA prior to AT&T’s bid.
More details to follow
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