Wednesday, August 31, 2011

DOJ Files Antitrust Complaint to Block AT&T, T-Mobile Merger

The Department of Justice sued to block AT&T's (T) proposed $39B aquisition of T-Mobile USA  a division of Deutsche Telekom (DTE). While the stock of T has dropped 4% and Sprint (S) has jumped over 7%, this news really shouldn't be that surprising. Maybe thats just a sign of how lax the DOJ had gotten over the last few years regarding mergers.

The deal involves reducing the top 4 competitors down to 3. In all effective purposes the deal ultimately drops the competition to T and Verizon Wireless, a division of Verizon (VZ) and Vodafone (VOD).

Clearly T was shocked by the DOJ move as they offered up a package of $7B if the deal gets blocked. This makes the chances of a deal being worked out a lot larger. Whats the odds of the government ultimately requiring T to send $3B to Germany? Especially now that the Communications Workers Association (CWA) is upset about the deal being blocked. Obama is too pro union to ignore the requests of the CWA.

Ultimately the deal should come down to whether it is pro growth and provides favorable services and pricing for consumers and small businesses. Considering very few mega mergers provide growth opportunities, one should look very skeptical any growth suggestions.

T can argue all they want about spending more on capital equipment for 4G services and bringing back call centers, but what about 5G services? The real concern in anti-competitive mergers is 3-5 years down the road when the companies become entrenched and the lack of real competition allows them to increase prices and reduce services. Anybody remember how costly a long distance call was even in the mid-90s before competitive networks were built?

T will clearly fight this block so expect some fireworks down the road. With S being such a weak 3rd competitor, I'm not sure how spinning off spectrum or divisions would allow this deal to be completed. Any deal that makes T or VZ bigger and the competition smaller would likely be blocked.

Via Bloomberg:

  • 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 (DTE), would violate U.S. antitrust law. The U.S. also asked for a court order blocking any arrangement implementing the deal.
  • “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 purchase of Bellevue, Washington-based T-Mobile would combine the second- and fourth-largest carriers to 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 argued against the deal. Overland Park, Kansas-based Sprint’s shares jumped as much as 9.9 percent.
  • 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 Statement:


At the end of the day, we believe facts will guide any final decision and the facts are clear. This merger will:

  • Help solve our nation’s spectrum exhaust situation and improve wireless service for millions. (This might be accurate as T's service is horrible, but not a valid reason for controlling the industry. Maybe T shouldn't have done a anti-competitive deal for the iPhone)
  • Allow AT&T to expand 4G LTE mobile broadband to another 55 million Americans, or 97% of the population; (Again why does it need to be T instead of another strong competitor?)
  • Result in billions of additional investment and tens of thousands of jobs, at a time when our nation needs them most. (When a company gains a dominant position this never happens. T will not have an incentive to hire with a weak S is the only provider willing to undercut pricing)


Disclosure: No positions. Please consult your investment advisor before making any investment decisons. This article is provided for informational purposes. 

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