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DOJ Sues To Block AT&T/T-Mobile Merger; AT&T Reacts

The Department of Justice has sued to stop the $39 billion dollar buy out of T-Mobile by the second largest wireless carrier in the United States, AT&T.

When AT&T first announced their intention to buy T-Mobile back in March of this year they felt there wouldn’t be any major snafus when it came to federal regulatory approval.  AT&T spent millions lobbying congress, governors and other groups that would support AT&T’s plan.

AT&T’s General Counsel Wayne Watts said earlier today:

“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.”

More after the break

Despite those meetings the Department of Justice filed a lawsuit today to block the AT&T/T-Mobile acquisition saying this in the lawsuit according to Bloomberg:

“AT&T’s elimination of T-Mobile as an independent, low-priced rival would remove a significant competitive force from the market,”

AT&T has said repeatedly that they need spectrum from T-Mobile in order to rollout 4G/LTE service and expand their network to 97% of the United States.  This is a claim that has been repeatedly disputed by Sprint and others.  AT&T acquired the spectrum at the end of 2010 from Qualcomm that was used for their failed Flo TV system.  That spectrum set AT&T back 1.9billion and was supposed to significantly increase their spectrum holdings for the expansion they hope to complete.

Earlier this summer it was revealed via a memo to the FCC that AT&T had enough spectrum to cover 97% of the United States population with 4G/LTE quicker and more efficiently before the merger was announced.

AT&T released a preemptive release yesterday announcing that they would bring back 5,000 customer service jobs to the United States from overseas after the merger. 12 hours later it’s clear that the timing of that release was to lessen the blow from this suit coming down.

In our current economic times more than half the country has “bad” credit or at least credit that they themselves perceive as bad.  AT&T has long had the reputation of carrying the strictest of the four carriers in credit checks. We’ve often witnessed people say that they were just recently approved for a car or a home and still get denied service from AT&T.

T-Mobile on the other hand has been proactive in giving those with riskier credit the ability to purchase and use T-Mobile service the same way everyone else does.  T-Mobile has revamped their plans several times with that customer in mind.  They also offer all of their devices in a prepaid option in addition to traditional grab and go prepaid.

Of course these customers on post paid accounts would carry over to AT&T and have the benefit of staying with AT&T despite their credit however in a cost analysis AT&T plans are substantially more expensive than corresponding plans with similar buckets and features as T-Mobile. With T-Mobile out of the way AT&T wouldn’t have much risk in raising rates even more.

This is actually another one of Sprint’s concerns. With most of the wireless industry falling into the hands of two big companies, Verizon and AT&T, Sprint’s CEO Dan Hesse pointed out repeatedly that Vendors of wireless equipment and services that the wireless companies use could also raise their rates and effectively price Sprint out.  In essence this would be stifling competition. It seems FCC Chairman Julius Genachowski agrees, issuing this statement after the DOJ suit was announced:

“By filing suit today, the Department of Justice has concluded that AT&T’s acquisition of T-Mobile would substantially lessen competition in violation of the antitrust laws,” FCC Chairman Julius Genachowski said in a statement. “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. 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.”

If AT&T doesn’t close the deal they will owe T-Mobile near $6 billion dollars in cash and other considerations.  Consequently that $6 billion dollars would be more than enough for T-Mobile to sustain itself independently for a few years.

Source: FierceWireless and FH for AT&T

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