While Sprint declared its opposition to the deal, consumer groups suggested that the proposed deal promotes a monopolistic market and many in the industry stated such market aggression by AT&T was reminiscent of the company’s strategy in the 1980s.
On August 31 2011, almost five months after the deal was announced, it appeared the Department of Justice (DoJ) had finally bowed to public and market opinion by filing to reject the acquisition, based on antitrust grounds. The DoJ declared that: “AT&T’s elimination of T-Mobile as an independent, low-priced rival would remove a significant competitive force from the market.”
“The DoJ’s arguments against the merger have significant merit,” said Ovum chief analyst Jan Dawson. “T-Mobile has acted as a disruptive competitor in the market, pioneering new service plans and devices and putting significant competitive pressure on the three largest operators. AT&T’s intention to acquire T-Mobile was motivated primarily by spectrum and network concerns, but without doubt it would also have alleviated that competitive pressure. The DoJ advises AT&T to instead invest in its own network, but it is unclear whether AT&T has all the resources – especially spectrum – in house to do this.”
Despite such advice, AT&T did not take the decision lying down. In a statement released immediately after the ruling, Wayne Watts, AT&T’s senior executive vice president and general counsel, said that the company “intends to vigorously contest this matter in court”.
He continued: “We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed.”
The ruling in August followed an order by the Federal Communications Commission (FCC) a week earlier, for AT&T to release details on the rationale of its decision to acquire the USA’s fourth largest mobile carrier.
With AT&T claiming a joint AT&T, T-Mobile venture in the US would provide wireless benefits and additional spectrum to millions of Americans,the FCC revealed AT&T had already established and discarded a strategy that could have seen it expand its LTE network to 97% of the US population at a cost of $3.8 billion – without an acquisition.
A joint venture involving AT&T and T-Mobile would create a new market leader in the US. The FCC’s main concern appears to be whether the benefits to the consumer would outweigh the factors of limited competition. When announcing the deal, AT&T declared
that if the deal went through, it would provide LTE to over 95% of the US population, reaching an additional 46.5 million Americans and addressing a divide in rural areas.
Several alternatives have also emerged for AT&T if it is to salvage something from the saga. If the proposed merger fails, the company will be required to pay Deutsche Telekom a break fee of approximately $6 billion and provide several other concessions to the company. One way to avoid this is “to immediately pursue a network sharing agreement which is along the lines of similar
deals seen in Europe”, adds Dawson. “This would arguably have been a better strategy from the outset given the inherent risks involved in such a major acquisition.”
There is also the suggestion that AT&T has approached the DoJ and FCC to offer concessions to competitors if the deal goes through. This could include selling off up to 25% of the airwaves and customers of its newly acquired company to smaller rivals to maintain competition in the market.
For AT&T, a quick resolution is essential to ensure it maintains competition in the wireless space. Dawson added: “The uncertainty created in the meantime poses several very difficult decisions for AT&T, especially in terms of network investment.”
