Communications supergiant AT&T may be waging a losing battle in its attempts to complete a merger with T-Mobile.  This past Wednesday, the Department of Justice filed an antitrust lawsuit against the company.  The DOJ’s chief concern in filing suit is to preserve competition in the industry.  Although the wireless service provider industry has some smaller regional providers, only four parties compete on a national level — AT&T, T-Mobile, Verizon, and Sprint.  The DOJ alleges that the merger would violate antitrust rules by greatly reducing competition, leading to “far higher prices, less product variety and innovation, and poorer quality services.”

Attempting to make the deal more palatable to its opponents, AT&T has pledged to move 5,000 call center jobs back to the United States should the merger succeed.  AT&T has touted this promise as the “largest return of jobs by any U.S. company since 2008.”  However, despite also guaranteeing no loss of United States-based call center jobs, the company has not disclosed how many jobs would be eliminated in other departments upon completion of the merger.

Should AT&T succeed in defeating the DOJ’s lawsuit, it will face a stone wall in seeking requisite approval of the merger from the Federal Communications Commission. FCC Chairman Julius Genachowski stated that the merger had already “raise[d] serious concerns about the impact of the proposed transaction on competition” prior to the DOJ’s filing.  Several members of Congress have also expressed concern or directly opposed the merger through letters to both the DOJ and the FCC, citing the potential harmful effects on competition, consumer choice, and rural and regional wireless providers.

Should AT&T accomplish the (nearly) impossible, it would displace Verizon Wireless as the largest United States wireless carrier, with more than 132 million connections to mobile wireless devices and about $72 million in mobile wireless service revenue.

Meredith Lawrence

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4 Responses to Merger Impossible?

  1. Niels Melius says:

    While it is true that 4-to-3 mergers are typically frowned upon by the antitrust enforcement agencies, this type of “structural presumption” has lost some of its dispositive weight in recent years. The Chicago School’s antitrust “revolution” shifted focus to the “effects” of proposed mergers. Thus, the DOJ would be wise to focus the heft of its case on potential anticompetitive effects of the merger. This might actually be where the DOJ runs into some trouble. With Verizon still a major player in the market, can the DOJ plausibly argue that AT&T will be able to unilaterally raise prices after T-Mobile exits the market? One would think Verizon would still act as an important check. The DOJ might also argue that AT&T will be able to more easily collude with Verizon in coordinating a price increase in the market, but such behavior would expose both companies to a Sherman Act, Section 1 violation. Ultimately, I think this is a winnable case for the DOJ, but perhaps not as much of a “slam dunk” as the previous commenters allege.

  2. Ilana says:

    A 4-to-3 merger is unlikely to pass muster under current merger doctrine, unless the merging parties can persuasively articulate several merger-specific efficiencies that override the antitrust authorities’ distaste for consolidation. Although the Supreme Court has not decided a substantive merger case since the 1970s, it would be interesting to see how the Court would treat a merger in an industry that developed out of the natural monopoly of its predecessor industry.

  3. Tom says:

    I was surprised that the combined entity would only result in $72 million in mobile wireless revenue. After checking it seems this was just a typo, the combined entity will result in $72 billion in mobile wireless revenue. Consumers looking for a cell phone provider with nationwide service is already quite scarce at four companies. Without having too much knowledge about the specific market numbers, at first glance it seems highly unlikely AT&T will prevail in this lawsuit.

    While the promise of bringing over 5,000 call center jobs from overseas and guaranteeing no loss of current domestic call center jobs seems positive, the lack of disclosure regarding the loss of other positions is discouraging. Either way, it seems as though we will be replacing mid-level business executive positions with call-center jobs. While there might be an overall net gain in U.S. jobs, the quality of the positions being lost should also be considered.

  4. Eric says:

    Some more interesting tidbits:
    Spring filed suit against the merger as well. Presumably with the ultimate goal of being made a party to the DOJ’s lawsuit, and putting its resources behind stopping this merger. It appears that the DOJ’s action has inspired others to act.
    In addition, if the deal does not go through by September 2012, AT&T has to pay T-Mobile $3bn in breakup fees. AT&T will no doubt do everything it can to expedite this lawsuit, but DOJ appears to be taking its time. It will be interesting to see it unfold.
    Promises of jobs are always cause for skepticism. I’ll believe it when I see it.