Arguing that AT&T's proposed $39 billion purchase of T-Mobile would cost American jobs and hinder competition in the hotly contested mobile industry, the US Department of Justice (DOJ) on Wednesday took the risky and unusual step of suing AT&T to block the deal. AT&T and T-Mobile contested that opinion, though it's unclear whether they'll call the DOJ's bluff and head to court.
"The view that this administration has is that through innovation and through competition, we create jobs," said Deputy Attorney General James Cole at a press conference announcing the lawsuit. "We see this as a move that will help protect jobs in the economy, not a move that is going in any way to reduce them."
The deal would have created the largest wireless carrier in the United States—AT&T is currently number two behind Verizon Wireless, while T-Mobile is a distant fourth—and sliced the number of major carriers in the country to just three. According to the DOJ, these three carriers (AT&T/T-Mobile, Verizon, and Sprint) would account for well over 90 percent of mobile customers in the United States, harming competition and consumers.
AT&T did just about everything it could do to push the purchase past regulators. It offered to jettison any side businesses that were required in order to get the deal approved. And in May, AT&T CEO Randall Stephenson even argued that AT&T and T-Mobile weren't strictly competitors anyway, so the deal should simply be approved. Regulators scoffed at that notion, and AT&T quickly dropped the argument and turned toward the notion of smaller, local wireless carriers as proof of competition. Most consumers in the United States, AT&T says, can choose from five carriers, most of which are small, local players.
The DOJ didn't buy that argument either. And it is able to use AT&T's own words against it. In a statement made to the DOJ three years ago during its acquisition of Centennial Wireless, AT&T noted that it would "develop its rate plans, features and prices in response to competitive conditions and offerings at the national levels—primarily the plans offered by the other national carriers."
"As AT&T recognized, 'the predominant forces driving competition among wireless carriers operate at the national level'," Cole noted, not the local level. "That remains the case today." In other words, by reducing the number of major, national carriers to just three, there will be less competition and higher prices.
Evidence of this emerging pricing scheme is already out there. After AT&T cancelled its unlimited data plans last year, Verizon Wireless followed suit in 2011. And this is happening just as consumers are learning to rely on their mobile data plans more and more. The result, critics say, is that we will all end up paying more for data—much more—over time, as our devices creep inexorably toward the new, limited monthly data caps.
For the DOJ, the lawsuit is a somewhat unusual step indicating that it had run out of options in blocking the deal. Usually, just the threat of a lawsuit is enough to scuttle any anti-competitive corporate deals, or cause deep changes that cause the deal to pass regulatory muster. But the DOJ (and the Federal Communications Commission—FCC—which also has antitrust oversight) has occasionally had to sue to block these deals, and with mixed results. The DOJ is about to head to court with H&R Block, which is attempting a takeover of its own and was unwilling to settle. And back in 2004, the DOJ lost a legal bid to prevent database giant Oracle from purchasing PeopleSoft.
Of course, the most likely outcome is a settlement in which AT&T and/or T-Mobile make some series of concessions that would appease the DOJ and lead to an approval of the deal. And since any legal action against the companies could take years to resolve, the companies have plenty of time to work on those concessions. "Our door is open," DOJ acting antitrust chief Sharis Pozen noted. "If they want to resolve [our] concerns, we can certainly do that."