Since AT&T's announced plans to purchase T-Mobile USA, there has been a lot of talk about why and how. What are AT&T's real reasons for the purchase? Will the federal government allow said merger? This week we got the answer to the last question.
The US Department of Justice filed a suit to prevent the $39 billion merger between the only 2 GSM carriers left in the US. They claim that the merger would damage the state of the wireless industry, essentially eliminating the low-cost alternative to the Big 3 (Verizon Wireless, AT&T and Sprint). They also claim that no amount of technology gain from the combination of spectrum would offset this damage to consumers.
What did the DoJ say and what do the carriers think about this move? Hit the break to find out.
The DoJ says they carefully examined AT&T's stated reasons, the ability to expand its 4G LTE network to a much wider population with the additional spectrum and revenue base, but rejected it. AT&T currently owns a lot of unused spectrum, more than enough to accomplish this goal without T-Mobile's help. In addition, the revenue generated by the T-Mobile business would not overcome the high price tag of eliminating their only like-technology competitor.
AT&T doesn't seem to be too down on this, though. You would think that they would, considering if the deal doesn't go through, they will still owe parent company Deutsche Telekom $3 billion plus reduced roaming fees and spectrum in some markets. AT&T general counsel said,
The DOJ has the burden of proving alleged anti-competitive affects and we intend to vigorously contest this matter in court. At the end of the day, we believe facts will guide any final decision and the facts are clear.
Sprint, the company who has the most to lose in this merger deal, is obviously delighted by this news. Vonya McCann, Sprint's senior vice president of government affairs, said,
The DOJ today delivered a decisive victory for consumers, competition and our country. By filing suit to block AT&T's proposed takeover of T-Mobile, the DOJ has put consumers' interests first... Contrary to AT&T's assertions, today's action will preserve American jobs, strengthen the American economy, and encourage innovation.
However, they haven't been quiet on this topic even from the beginning. CEO Dan Hesse told Jim Cramer in March,
If you take a look at the market power of the big two, in postpaid, which is contracts, the way most users think of the business, in 2005 the big two had 52% market share. They've expanded that now with acquisitions in the last few years, up to 67%. If this transaction goes through you're talking 79%, or roughly 80% of the market controlled by two companies. I think that's a little too much -- too much concentration.
If the deal were to go through, it would be the 4th such deal in the last 8 years: AT&T-Cingular in 2004, Sprint-Nextel in 2005 and Verizon-Alltel in 2008. Clearly the DoJ is afraid that the companies aren't interested in expanding through good service and fair prices but, instead, by purchasing unsuspecting customers. The deal could definitely still go through, but AT&T is going to have to make A LOT OF concessions to make it happen.