Justice Department Blocks Merger Between AT&T and T-Mobile Cellphone Networks

Aug 31, 2011 11:42am
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AT&T proposed a merger with T-Mobile USA, now blocked by the Justice Department.

The U.S. Justice Department, citing a lack of competition for American’s cellphone business, said today it would move to block the proposed merger of AT&T and smaller rival T-Mobile USA.

“We are seeking to block this deal in order to preserve a vibrant and competitive marketplace,” said Deputy Attorney General James Cole in a press briefing in Washington, intentionally called on short notice. “Right now, only four national providers provide more than 90 percent of wireless service in the United States, and preserving competition among them is crucial.”

It is a $39 billion deal that the Justice Department is seeking to quash. AT&T and T-Mobile were trying to get ahead of Verizon Wireless, the market leader in the cellphone carrier business. The merger proposal had been opposed by Sprint Nextel, the No. 3 carrier, as well as consumer groups.

In a statement today, AT&T said it was “surprised and disappointed” by the government’s action.

“We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed” said Wayne Watts, AT&T’s general counsel. “The DOJ has the burden of proving alleged anti-competitive affects and we intend to vigorously contest this matter in court.”

T-Mobile’s German owner, Deutsche Telekom AG, had said it’s not willing to invest more in the venture, which was why it wanted the deal. To sweeten the pot, AT&T had promised that the merger would not cost any American jobs, and pledged that 5,000 jobs at service centers — currently located overseas — would be moved to the United States.

If the merger now collapses, AT&T may have to pay T-Mobile $3 billion in cash, which it had promised if the deal fell through.  It had also said it would give T-Mobile rights to transmission wavelengths that could be worth billions as well.

In the moments after the announcement, AT&T stock dropped more than 5 percent. Shares of  Sprint Nextel, which would stand to benefit if its competitors can’t merge, got a 5 percent boost.

 

(Read more from Pierre Thomas and Jack Cloherty HERE.)

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