NEWS ANALYSIS
mike.hibberd@informa.com
AT&T faces objections to merger proposal
AT&T has encountered stiff resistance to its plan to buy the US operation of T-Mobile for $39bn in the shape of the US Department of Justice. It will have to offer significant concessions if it wants to see the deal progress.
t is difficult to imagine that AT&T’s leadership thought the firm’s proposed $39bn acquisition of T-Mobile’s US operation would be allowed to pass unmolested by the competition authorities; the firm has too much experience of large scale M&A for that. But it is certainly conceivable that the vehemence shown by the US Department of Justice in opposition to the deal will have surprised the carrier. At the death of August the DoJ filed a civil antitrust
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lawsuit in a bid to block the deal, claiming that it would “substantially lessen competition” in the US wireless sector, if allowed to proceed. “Unless this merger is blocked,” said Sharis Pozen, who heads up the DoJ’s Antitrust Division, “competition and innovation will be reduced and consumers will suffer.” Then the FCC weighed in, albeit in more measured tones.
Commissioner Michael Copps said that he “shared the concerns about competition” that his DoJ colleagues had voiced, adding that he has “numerous other concerns about the public interest effects of the [deal], including consumer choice and innovation.” But the FCC added that it had yet to complete its own review of the application, ceding leadership on the issue to the DoJ.
DoJ may simply be beating its chest in a bid to force AT&T to work harder on any proposed concessions.
Emboldened by the DoJ’s forthright response, AT&T’s
competitor Sprint—which would be cast adrift from the leading pack of US carriers if the deal were allowed to proceed—joined the fray with a suit of its own. Sprint claimed that the deal would be in violation of section 7 of the Clayton Act, which covers US competition issues. As this issue of MCI went to press, one or two stories
were circulating suggesting that AT&T had already approached a number of US carriers offering to sell off certain assets in the wake of a successful acquisition, but the firm had not gone on the record confirming any such discussions.
So what will become of the deal? That rather depends on whether the DoJ is bluffing. If it sticks to its position that an independent T-Mobile is vital to the competitive health of the US mobile market then no amount of concession from AT&T—divestiture of spectrum, subscribers or properties—is going to mollify it. Of course the DoJ may simply be beating its chest in a bid to force AT&T to work harder on any proposed concessions. Much hinges on this question, but it needs to be
remembered that this is a three-sided debate—T-Mobile is not an altogether passive figure. The DoJ’s enthusiasm
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for T-Mobile USA’s ongoing existence is based in part on a number of market innovations, including the first Blackberry email service in the US, the first Android handset, a nationwide wifi hotpsot network and a number of innovative pricing bundles. Such propositions have spurred T-Mobile’s peers to more onto more competitive offerings; the German firm has kept them from getting lazy. The problem with this is that it doesn’t seem to be
working particularly well for T-Mobile—to the point where parent company Deutsche Telekom wants out of the US market. While the US market continues to grow, T-Mobile is actually losing subscribers, albeit very slowly, from 33.3 million in September 2010 to 33.1 million in June 2011. The plight of T-Mobile has formed a central plank of
AT&T’s response to the DoJ intervention. In a September filing answering the DoJ’s objections, AT&T said that the Department could not explain how “T-Mobile, the only major carrier to have actually lost subscribers in a robustly growing market, provides a unique competitive constraint on AT&T.” AT&T went onto paint a bleak picture of T-Mobile’s future, should it not be allowed to shelter beneath the bigger carrier’s wing. “For the past two years, T-Mobile has been losing customers despite growing demand, and, without the spectrum to deploy a 4G LTE network such as that deployed by the other carriers, there is no reason to expect a change in its undifferentiated competitive significance. To the contrary, T-Mobile’s business model remains “stuck in the middle” between larger providers like Verizon, AT&T, and Sprint, and lower-priced competitors like MetroPCS and Cricket. And T-Mobile’s German parent, Deutsche Telekom, announced that it would not continue to make significant investments in the United States.” Rather than the destroyer of competition portrayed by
the DoJ, AT&T is seeking to cast itself as a saviour. This may be over-egging the cake somewhat. Ovum’s chief telecoms analyst Jan Dawson, based in the US, describes AT&T’s depiction of T-Mobile as “disingenuous”. T-Mobile might not be in the rudest of health, Dawson, says, but it’s a long way from needing to hear the Last Rites. “T-Mobile isn’t on the brink of bankruptcy and AT&T’s
filing assumes that T-Mobile would just carry on as it has been doing, and wouldn’t be able to turn itself around in another way,” Dawson says. “[The filing] has some merit, but it’s a tad disingenuous to suggest that if AT&T doesn’t acquire T-Mobile tomorrow then T-Mobile will just go out of business.”
Indeed, should the deal fall in the face of regulatory
objection, T-Mobile could benefit in the short term—if reports of a multi-billion dollar break-up fee are to be believed. As well as offsetting any drop in valuation resulting from the deal’s collapse, the fee could help fund »
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