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US government tries to halt AT&T’s T-Mobile takeover

Department of justice attempts to block bn merger on antitrust grounds

The US government has attempted to block the bn (£24bn) takeover of T-Mobile by AT&T on antitrust grounds.

The department of justice filed court papers in Washington in an attempt to halt the merger, claiming that it would “lessen competition substantially” in the telecoms market and harm consumers.

AT&T said it was “surprised and disappointed” by the government intervention.

“AT&T’s elimination of T-Mobile as an independent, low-priced rival would remove a significant competitive force from the market,” the department of justice said in its filing, which was first reported by Bloomberg.

The multibillion-dollar merger, announced in March, would create the largest mobile provider in the US with 130 million customers, reducing the number of players in the market from four to three.

The US telecoms giant AT&T is the second largest network in the US, behind Verizon Wireless, with T-Mobile the number four network. Sprint Nextel is the other remaining large operator in the country, with the third largest service.

The department of justice court filing, seen by the Guardian, concludes that the AT&T-T-Mobile merger would cause: “actual and potential competition between AT&T and T-Mobile will be eliminated; competition in general likely will be lessened substantially; prices are likely to be higher than they otherwise would; the quality and quantity of services are likely to be less than they otherwise would due to reduced incentives to invest in capacity and technological improvements; and innovation and product variety likely will be reduced”.

Wayne Watts, senior executive vice-president and general counsel at AT&T, said in a statement: “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.

“We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed. The DOJ has the burden of proving alleged anti-competitive effects and we intend to vigorously contest this matter in court.”

He said the merger would result in billions of dollars in additional investment and tens of thousands of jobs, and would improve wireless access for millions of people.

He added: “We remain confident that this merger is in the best interest of consumers and our country, and the facts will prevail in court.”

AT&T proposed in March to pay bn in cash for T-Mobile USA and the rest in stock, giving T-Mobile’s German parent an 8% stake in AT&T. The agreement was approved by the boards of directors at both AT&T and Deutsche Telekom.

Regulators have pored over the terms and implications of the deal for months, given its size and scale. AT&T’s shares were down 3.85% in early-morning trading on the New York stock exchange, trading at .53. In late Frankfurt trading, shares in the T-Mobile parent company Deutsche Telecom were down 4.8% at €9.08.

Shares in Sprint Nextel, AT&T’s rival mobile operator, soared 7.6% on the news as analysts predicted that the government block could benefit competitors.

“At the very least, this will now create a massive uphill battle for AT&T in consummating its merger, and will create significant delays,” said Jan Dawson, chief analyst at Ovum. “At worst, it will prevent the merger from happening entirely, which will result in a massive breakup fee of several billion dollars and various other concessions on the part of AT&T.”

AT&T promised T-Mobile bn in cash if the deal fails to go through, as part of the terms of the merger.

Dawson added: “The uncertainty created in the meantime poses several very difficult decisions for AT&T, especially in terms of network investments. It will have to decide whether to press ahead with its own LTE rollout on the assumption that T-Mobile’s network assets and spectrum will eventually be part of it, or whether to pursue another strategy for rolling out 4G.”

AT&T sought to fend off antitrust complaints in March. The Dallas, Texas-based telecom argued that the US wireless industry is “one of the most fiercely competitive markets in the world and will remain so after this deal”.

The department of justice had not returned requests to comment at the time of publication.

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