Obama Administration Sues to Block AT&T/T-Mobile Merger

Published May 31, 2016

AT&T’s proposed $39 billion acquisition of T-Mobile hit a major roadblock August 31, when the U.S. Department of Justice filed suit in federal court to block it on the grounds the deal would negatively impact competitiveness in the wireless industry as well as harm consumers. Advocates of the merger, however, dispute the DOJ’s claims, asserting the block will raise prices for wireless consumers and work to the sole benefit of the companies’ competitors.

The DOJ’s action is “good for antitrust lawyers,” said Bret Swanson, president, Entropy Economics LLC, a company that conducts research on the growth of the Internet and the broadband networks and applications that drive it. The suit, Swanson added, is “bad for network capacity and jobs in the mobile Internet sector.”

“The proposed merger would not eliminate T-Mobile as a rival,” said Sam Karnick, research director at The Heartland Institute, which also publishes Infotech & Telecom News. “It would make the failing wireless firm a real competitor by combining its consumer benefits with those of AT&T.”

‘Woefully Ill-Equipped’
In papers filed with the court, the DOJ wrote: “AT&T’s elimination of T-Mobile as an independent, low- priced rival would remove a significant competitive force from the market.”

The DOJ suit immediately reversed Wall Street gains for telecommunications companies, with AT&T dropping 4.6 percent – the largest drop on the day’s Standard & Poor’s 500 Index.
“This is a government which has ensconced this nation in an inert economy and 9-plus percent unemployment,” said Seton Motley, president, Less Government, a Washington, DC-based limited-government and free-market advocacy organization.

“It has thusly demonstrated itself to be woefully ill-equipped to execute any sort of nuanced free market analysis,” Motley added. “It certainly has no business stepping in to block a merger that is clearly in the best interest of the nation’s economic growth generally – and the consumers and future, new employees of the company who will benefit specifically and directly.

‘Surprised and Disappointed’
AT&T announced the proposed takeover of T-Mobile this past March. The deal was contingent upon regulatory approval by the Federal Communications Commission, the Federal Trade Commission, and the Department of Justice. If denied, AT&T must pay Deutsche Telekom – T-Mobile’s owner – $3 billion in cash, as well as grant T-Mobile portions of AT&T’s wireless spectrum, and reduce T-Mobile charges for calls into AT&T’s network. All told, AT&T may surrender as much as $7 billion.

“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,” said Wayne Watts, AT&T senior executive vice president and general counsel, in a company statement. “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.”

Watts said the merger “will help solve our nation’s spectrum exhaust situation and improve wireless service for millions” as well as “allow AT&T to expand 4G LTE mobile broadband to another 55 million Americans, or 97 percent of the population.” Additionally, he stated that the merger would prompt the investment of billions of investment dollars and create “tens of thousands of jobs,” which has been one of the Obama administration’s major goals in a sputtering economy witnessing unemployment hovering around 10 percent for the past 32 months.

“If this Administration truly wants the private sector to again start hiring, they need to stop actively working to oppose any and all efforts by the private sector to actually do so,” said Motley.

“The Obama administration’s antitrust action will actually reduce competition and hike consumer prices further,” Karnick said. “The only people who will benefit from this entirely unjustified action are the shareholders of the other industry competitors to AT&T and T-Mobile.”

Gary Wolfram, an economics professor at Michigan-based Hillsdale College, concurs with Karnick. “It is impossible for a central planner in the form of a judge or administrative agency to know whether the combined company of AT&T and T-Mobile will be less efficient in providing telecommunications services than the companies standing alone,” Wolfram said. “The fact that the stockholders and management think the combined firm is more likely to produce services that consumers are willing to pay enough for to offset the cost of the resources used up in providing those service would argue for the merger.”

Bruce Edward Walker ([email protected]) is managing editor of Infotech & Telecom News.