Yesterday the U.S. Justice Department filed a suit to block telecommunications giant AT&T from acquiring T-Mobile USA based on concerns that the proposed deal would make the mobile telephone marketplace less competitive, according to Bloomberg's Tom Schoenberg, Sara Forden and Jeff Bliss. CNET's Don Reisinger quoted an AT&T spokesperson, Senior Executive Vice President and General Counsel Wayne Watts, who said that his company had worked with the Department of Justice to answer its questions and was surprised that the agency had filed suit. Watts said his company needs the acquisition to bring 4G services to 97 percent of the country. AT&T plans to appeal.
If the merger goes through, it would make AT&T the new largest mobile communications company in the United States. Currently, Verizon is in first place, followed by AT&T, Sprint and T-Mobile.
The Department of Justice is looking into T-Mobile's business practices, and it seems to feel that the company may be helping customers more by remaining independent. Reisinger quoted a statement from the DOJ's antitrust division's Acting Assistant Attorney General Sharis A. Pozen, who said the company is an innovator, offering the first HSPA+ high-speed data network and the first Android phone (the HTC G1). The DOJ also mentioned the aggressive pricing of T-Mobile's calling plans. Julius Genachowski, chair of the Federal Communications Commission, said in a statement that the FCC will be scrutinizing the deal's impact on competition as well.
Investors seemed concerned about the DOJ's decision. Reuters reported this morning that some investment banks trimmed price targets for Deutsche Telekom's stock after yesterday's announcement. Incidentally, if the proposed $39 billion deal falls through, T-Mobile would get $3 to 6 billion from AT&T, along with some wireless spectrum. And Marguerite Reardon wrote at CNET this morning that there could be other deals in the works if AT&T's attempt fails outright (though the appeals could last for some time). T-Mobile may need someone else as a partner. The company's HSPA+ network is technically an upgraded 3G technology, and while it can compete with early 4G networks now, there will be pressure on T-Mobile to upgrade its spectrum and network tech to keep up with competitors down the road, as Reardon wrote. That's not going to be cheap. Meanwhile, The Tennessean wrote that T-Mobile has been losing subscribers, which doesn't help the company raise money for a new network.
For now, the deal isn't dead, but it's obvious that DOJ (and possibly FCC) concerns put the acquisition on shaky ground.