AT&T and T-Mobile merger blocked

September 8th, 2011

The U.S. Department of Justice filed a suit against AT&T against the cellular phone giant’s $39 billion dollar acquisition of T-Mobile USA.

“The department filed its lawsuit because we believe the combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for their mobile wireless services,” the deputy attorney general, James M. Cole, told the press.

Currently the four top players in the mobile game are AT&T, Verizon, Sprint, and T-Mobile. AT&T and Verizon have long been the superior of those four. With that said, many legal concerns come with this acquisition of T-Mobile.

In the corporate world, this horizontal merge would in essence begin to create a duopoly in the mobile technology market, with AT&T and Verizon to compete over a lucrative consumer base.

This lack of competition may inevitably become the demise of smaller companies, like Sprint, considering the fact that AT&T and Verizon would then control 80 percent of the market, according to The Wall Street Journal.

Throughout U.S. history, there have been many laws, regulations, and standards set in place in order to uphold the integrity of the American economy.

One of the most important laws set in place was the Clayton Antitrust Act of 1914.  In short, this law prohibits any economic practices that do not promote competition.

One reason for this law is to protect smaller businesses from being taken advantage of by much larger businesses.   AT&T must prove that they are promoting competition for the transaction to be legal.

AT&T believes a horizontal merge wouldn’t change the local market perspective. Additionally, T-Mobile has became a weaker competitor and its growth has slowed considerably.

“We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed,” AT&T said in a statement. “The Department of Justice has the burden of proving alleged anticompetitive effects and we intend to vigorously contest this matter in court.”  This argument has worked previously with airplane manufacturer Boeing and their aquisition of McDonnell Douglas.

The fate of the deal still remains in question, though. It is difficult to come to a conclusion because of the uniqueness of this particular deal.  Also, and maybe more significantly, the Department of Justice may have filed suit to early. AT&T and T-Mobile have made an agreement that all antitrust concerns must be worked out and approved by Sept. 20, 2012.

If the deal is allowed, many things will change in the mobile technology industry.

In terms of competition, Verizon can expect to have a year or two to take advantage of the large amount of time it will take for AT&T to combine its branch locations and make room for its upsizing, according to The Wall Street Journal.

Consumers, on the other hand, shouldn’t expect to be immediately affected, yet in the long run will likely run into higher prices.