WASHINGTON (CBS/AP) – The Justice Department filed suit Wednesday to block AT&T’s $39 billion deal to buy T-Mobile USA on grounds that it would raise prices for consumers.
The government contends that the acquisition of the No. 4 wireless carrier in the country by No. 2 AT&T would reduce competition and that would lead to price increases.
At a news conference, Deputy Attorney General James Cole said the combination would result in “tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for mobile wireless services.”
The lawsuit seeks to ensure that everyone can continue to receive the benefits of competition, said Cole.
AT&T said it would fight and ask for an expedited court hearing “so the enormous benefits of this merger can be fully reviewed.” The company said the government “has the burden of proving alleged anti-competitive effects, and we intend to vigorously contest this matter in court.”
Four nationwide providers—Verizon, AT&T, T-Mobile and Sprint— account for more than 90 percent of mobile wireless connections.
T-Mobile has been an important source of competition, including through innovation and quality enhancements such as the roll-out of the first nationwide high-speed data network, according to Sharis Pozen, acting chief of Justice’s antitrust division.
Mobile wireless telecom services play an increasing role in day-to-day communications, with more than 300 million smart phones, data cards, tablets and other mobile wireless devices in use.
Deutsche Telekom, the owner of T-Mobile, had no immediate comment.
The proposed cash-and-stock transaction would catapult AT&T past Verizon Wireless to become the nation’s largest wireless provider, and leave Sprint Nextel Corp. as a distant number three.
In a statement, Sprint said the Justice Department’s lawsuit “delivered a decisive victory for consumers, competition and our country. By filing suit to block AT&T’s proposed takeover of T-Mobile, the DOJ has put consumers’ interests first.”
AT&T and T-Mobile compete nationwide, in 97 of the largest 100 cellular marketing areas, according to the suit filed in U.S. District Court in Washington. They also vie for business and government customers.
The suit says AT&T’s acquisition of T-Mobile would eliminate a company that has been a competitive factor through low pricing and innovation. T-Mobile had the first handset using the Android operating system, Blackberry wireless email, the Sidekick smart phone, national Wi-Fi “hotspot” access and a variety of unlimited service plans.
In support of its case, the department quoted an unidentified AT&T employee on a competitive issue, the sophisticated wireless broadband devices that can provide high-speed data connections. The AT&T employee, according to the suit, noted that T-Mobile was first to have such devices in its portfolio and that “we added them in reaction to potential loss of speed claims.”
Federal Communications Commission chairman Julius Genachowski said the record before his agency “raises serious concerns about the impact of the proposed transaction on competition.” The FCC’s separate review of the proposed merger is not complete.
Commission member Michael Copps, a Democrat and a staunch opponent of industry consolidation, said that he shares “the concerns about competition and have numerous other concerns about the public interest effects of the proposed transaction, including consumer choice and innovation.”
Democratic Sen. Herb Kohl of Wisconsin, who heads the Senate Judiciary subcommittee on antitrust, competition policy and consumer rights, said the suit was an effort to protect consumers “in a powerful and growing industry that reaches virtually every American.”
The suit used some of T-Mobile’s own documents describing its role in the market to explain why the merger shouldn’t take place. In those documents, the company calls itself “the No. 1 challenger of the established big guys in the market and as well positioned in a consolidated 4-player national market.”
T-Mobile said its strategy is to attack other companies and find innovative ways to overcome the fact that it is a smaller company.
T-Mobile “will be faster, more agile and scrappy, with diligence on decisions and costs both big and small,” one company document said. “Our approach to market will not be conventional, and we will push to the boundaries where possible.”
Since AT&T first announced the deal in March, it has insisted that consumers would have a choice of multiple wireless providers, including Leap, Metro PCS and U.S. Cellular, in many markets even if the deal is approved.
But the department rejected that argument. It said regional providers face “significant competitive limitations” because they do not have national networks. The department said the enormous investments and resources needed to acquire wireless spectrum and build a network make it very difficult for new companies to enter the wireless market.
AT&T and T-Mobile also have said the merger would reduce dropped and blocked calls, and speed mobile Internet connections for subscribers. Faster service would result by combining their limited wireless spectrum holdings at a time when both companies are running out of airwaves to handle mobile apps, online video and other bandwidth-hungry services.
Finding more airwaves to keep up with the explosive growth of wireless broadband services is a priority of the FCC and the Obama administration.
But the Justice Department said AT&T could “obtain substantially the same network enhancements … if it simply invested in its own network without eliminating a close competitor.”
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