AT&T Merger With T-Mobile Under Serious Threat

The Department of Justice (DoJ) has launched a legal bid to block a planned merger of cellphone giants AT&T and T-Mobile. Meanwhile, the Federal Communications Commission (FCC) has hinted it may also raise objections.

The proposed merger between the second- and fourth-largest cellphone networks respectively would create a new market leader, with a combined subscriber base of 130 million overtaking the current number one, Verizon.

From the moment the deal was announced, speculation began that regulators would be wary of the "big four" becoming the "big three".

Concerns Result in Federal Antitrust Suit

The result has been a federal lawsuit on antitrust grounds.

In a report, the DoJ says the deal would significantly reduce competition, leading to "higher prices, fewer choices and lower-quality products for mobile wireless services." It also said it was particularly concerned about the effects a merger would have on rural areas, where there are often fewer networks available, meaning the loss of one company would have a more dramatic effect on competition. (Source: justice.gov)

The lawsuit makes particular mention of the fact that T-Mobile has previously been a competitive force in the market. That's not just in terms of price, but in innovation. Indeed, it specifically refers to a T-Mobile document listing some of the products and services that it debuted in the US, which were later copied by other companies.

DoJ: Network Improvements More Important

According to the Department of Justice, these problems far outweigh any benefits that the companies would gain from the merger and theoretically pass on to customers in the form of lower prices or better services. It suggested AT&T should simply take the money it planned to spend on T-Mobile and instead invest the cash in improving its own network.

The FCC is currently carrying out its own investigation of the deal and could raise objections in the next few weeks.

Responding to the DoJ announcement, FCC chairman Julius Genachowski said, "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." (Source: fcc.gov)

If the lawsuit succeeds and the deal fails, AT&T will have to pay T-Mobile's owners Deutsche Telekom $3 billion as part of the takeover agreement that's already been signed.