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AT&T’s History Repeats Itself: DOJ to Block Monopolistic T-Mobile Acquisition

Published onOct 11, 2011
AT&T’s History Repeats Itself: DOJ to Block Monopolistic T-Mobile Acquisition

People are more connected today than ever, mostly due to the prevalence of cell phones and the ability to call, text, or e-mail anyone at a moment’s notice.  The extreme competitiveness of the wireless market is evidenced by the numerous commercials from each carrier that are aired hourly.  Carriers strive to get their competitor’s customers to switch providers through cutting-edge technology, innovative phone plans, and, more importantly, by providing competitive rates.  That competition drives the industry, so what would be the result of a merger of two of the four largest mobile carriers in the country?  Would consumers be put at an unfair disadvantage?  Would antitrust laws be violated?  Those are the issues that the U.S. District Court for the District of Columbia will face in Department of Justice v. AT&T Inc.

On March 20, 2011, AT&T announced that it entered into an agreement to acquire T-Mobile USA for $39 billion from Deutsche Telekom AG.  This acquisition would boost AT&T’s subscriber base to over 129 million, making it the largest carrier in the nation, usurping Verizon Wireless.  Following the announcement, critics expressed concerns regarding the potential impact of the acquisition on consumers and competition within the cellular market.  Sprint has been particularly outspoken about the deal and has urged the “United States government to block this anticompetitive acquisition.”  Almost six months after the announcement of the acquisition, the Department of Justice filed a complaint requesting the government to declare the acquisition a violation of Section 7 of the Clayton Act (forbidding the lessening of competition and the creation of a monopoly through the acquisition of another company’s stock) and to enjoin AT&T from acquiring T-Mobile USA.

The Department of Justice alleges that the acquisition will cause a significant decrease of competition within the cellular market and result in fewer choices, higher prices, and less innovation for consumers.  The threat of decreased competition is real, as ninety-percent of wireless customers receive service from one of the four major wireless carriers (Verizon, AT&T, Sprint, and T-Mobile).  Though T-Mobile is the smallest of the four national wireless providers, it has maintained a competitive status through its aggressive pricing and innovation, and through providing many industry “firsts” including:  the first Android smart phone, Blackberry e-mail, the Sidekick, among others.  The department claims that the elimination of T-Mobile from the marketplace will ultimately harm the consumer because it removes a key competitor that keeps prices from inflating and that has provided many innovations within the wireless market.

AT&T will undoubtedly fight this lawsuit, as it stands to lose $7 billion if the deal is found to violate antitrust law.  The figure includes making a $3 billion cash payment to Duetsche Telekom AG, giving T-Mobile USA wireless spectrum, and reducing charges for T-Mobile calls into the AT&T network.  AT&T may likely face more pressure from Sprint as well.  Sprint has requested the court to let it sue AT&T and provide key industry knowledge to the court.  To join the suit, however, Sprint must show that it would be harmed by the acquisition and, accordingly, has claimed that it would no longer have access to the best handsets and data roaming deals.  The parties will appear for oral argument on October 24, 2011, on whether Sprint can join the suit.  The judge, however, has already stated it is unlikely that Sprint will be able to survive relevant precedent on the issue.

The matter will ultimately reach trial on February 13, 2012, and is predicted to last less than six weeks.  Other parties may be added, including Sprint and the FCC, which has yet to make a determination on the acquisition.  With so much at stake, particularly the well-being of the consumer, this case is sure to draw attention in the coming months.

* Chris Hewitt is a second-year law student at Wake Forest University School of Law and a member of the Journal of Business and Intellectual Property Law.  He holds a Bachelor of Business Administration in Trust and Wealth Management from Campbell University.  Upon graduation in 2013, Mr. Hewitt plans to practice business and estate planning law.

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