DOJ hits AT&T with antitrust suit - leaked documents make their case

by Steve Ragan - Aug 31 2011, 19:33

The U.S. Department of Justice (DoJ) has filed an antitrust lawsuit against AT&T in an effort to block the company from merging with T-Mobile. While AT&T plans to fight, documents accidently leaked to the public show that it doesn’t need T-Mobile at all when it comes to offering a larger LTE footprint.

In March, AT&T announced plans to merge with T-Mobile, paying $39 billion USD, which includes $25 billion USD in cash with the balance paid in stock. In exchange, Deutsche Telekom (T-Mobile’s parent company) will receive eight percent ownership in AT&T and a seat on the board of directors. If Deutsche Telekom takes five percent ownership, AT&T will then boost the cash offering by an additional $4.2 billion USD.

In the DoJ’s complaint, it argues that the merger will eliminate a company that has been a disruptive force through low pricing and innovation by competing aggressively in the mobile services marketplace. To back these points, the filing highlights several marketing and internal documents from T-Mobile, where the company touts several firsts when it comes to competition.

“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 mobile wireless services,” said Deputy Attorney General James M. Cole.

The overall focus is that unless the merger is blocked, competition and innovation, as well as consumers themselves, will suffer.

Moreover, the DoJ said that it gave serious consideration to the efficiencies AT&T claimed the merger would lead to, but concluded AT&T had not “...demonstrated the proposed transaction promised any efficiencies that would be sufficient to outweigh the transaction’s substantial adverse impact on competition and consumers.”

In the end, the DoJ said AT&T “could obtain substantially the same network enhancements that it claims will come from the transaction if it simply invested in its own network without eliminating a close competitor.”

AT&T was shocked to learn of the antitrust actions.

“We have met repeatedly with the Department of Justice and there was no indication from the DOJ that this action was being contemplated,” Wayne Watts, AT&T’s general counsel, said in a statement to Bloomberg. “We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed.”

But has AT&T’s own legal team inadvertently offered a smoking gun to the DoJ?

A document submitted to the FCC by Arnold & Porter (AT&T’s legal representatives during the merger), states that the actual cost of deploying LTE to 97 percent of Americans was $3.8 billion USD, far less than the purchase price of T-Mobile. The document also notes that AT&T was already planning to hit this level of coverage.

It’s important to note that the document itself was submitted to request redactions to the original before it was placed on public display. However, someone posted the redaction proposal instead [source]. It was picked up by DSLReports and published. AT&T tried to dismiss the accidental publication, but research proved its public statements on the matter were cloudy at best [source].

“AT&T's key talking point to regulators and the press has been the claim that they need T-Mobile to increase LTE network coverage from 80% to 97% of the population,” DSLReports’ write-up explains.

“In the letter, AT&T tries to make it seem like the decision to hold off on that 17% LTE expansion was based on costs. Yet the fact the company was willing to shell out $39 billion one week later, combined with AT&T's track record with these kinds of tactics, suggests AT&T executives knew that 80-97% expansion promise would be a useful carrot on a stick for politicians... Again, the reality appears to be that AT&T is giving Deutsche Telekom $39 billion primarily to reduce market competition.”

In addition, DSLReports noted that proof AT&T doesn’t need T-Mobile at all is a huge problem for the company “...since nearly every politician and non-profit that has voiced support for the merger did so based largely on this build out promise.”

“It's also a problem when it comes to the DOJ review, since proof that AT&T could complete their LTE build for far less than the cost of this deal means the deal doesn't meet the DOJ's standard for merger-specific benefits.”

As news of the antitrust suit spread, it wasn’t long before political lines were drawn.

Representative Edward J. Markey (D-Mass.), in a statement on the lawsuit, said it was a victory for competition, consumers, and choice.

“We should be protecting American consumers holding their cell phones, not just telecommunications titans holding stock in the companies. The merger would reduce the number of national wireless companies from four down to three, sending the mobile marketplace into a telecommunications time machine back to 1993. That would be an historic mistake,” he said.

“Back then, two companies had all of the licenses, and the cost of calls put cell phones out of reach for most Americans. That’s why Congress moved over 200 megahertz of spectrum for the creation of a third, fourth, fifth and sixth license in 1993. As a result, we had an incredible breakthrough - moving from 50 cents a minute to under 10 cents a minute for mobile phone calls in only a few years. All of the companies, including the two incumbents, had to go digital. Innovation was unleashed…Today’s decision by the Justice Department promotes these values, benefiting consumers and our economy.”

However, the Heartland Institute disagrees.

“The U.S. government has been creeping further away from the original intent of antitrust laws with each court decision. Today’s move to block the merger of AT&T and T-Mobile signals they’ve forgotten the intent of the law altogether. The Obama administration must be careful to remember that antitrust law doesn’t exist to protect companies from their competition, but rather to protect consumers from the effects of a competition-less market,” commented Marc Oestreich, the Legislative Specialist for Technology Policy, at The Heartland Institute.

“It is high time that regulators and bureaucrats ask themselves what is in the best interest of the consumer. Had they done so to begin with we could have avoided a multi-million-dollar interest-group PR campaign that, when all is said and done, will only increase access costs for those consumers in the greatest need.”

Adding to that are comments from Bruce Edward Walker, the Managing Editor of InfoTech & Telecom News at The Heartland Institute.

“Apparently, the word ‘competitive’ means whatever the current administration wishes. By the Federal Communications Commission’s own estimations, 89.6 percent of the U.S. population has access to five or more mobile carriers,” he said.

“Nope, no competition here, folks – only President Obama myopically marshaling his troops to drive up the costs of doing business for the wireless industry, reducing consumers’ choices among wireless carriers best suited to their individual needs and preferences, and redefining ‘competition’ to reflect an alternate universe where the United States doesn’t possess the most intensely competitive mobile-services market while boasting among the lowest prices and highest quality on the planet.”

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