Knowing AT&T would probably go to court, the Justice Department might have wanted to signal that it intends to get tougher on corporate marriages between rivals in markets with few other competitors.
A union between AT&T and T-Mobile USA would leave Verizon and Sprint as the only other major cell-phone carriers in the U.S. T-Mobile, a subsidiary of German telecom company Deutsche Telekom AG, is currently the No. 4 wireless carrier, while AT&T is second. Combined, AT&T would be the largest.
In a sign of its confidence, the Justice Department decided to strike down the deal even though it could have taken about three more months to study the pros and cons. The timing stunned AT&T, which said it didn’t get any advance warning.
“It was an aggressive and impressive move by the DOJ to take the battle right at AT&T,” said Daniel Wall, a San Francisco attorney who represented Oracle in its 2004 fight to win the right to buy PeopleSoft. “It sent a statement that the DOJ intends to fight this one all the way to the finish line.”
Wall said AT&T might have a tougher time proving its case than Oracle did against the Justice Department. In the PeopleSoft deal, Wall said, antitrust enforcers seemed to be manipulating the definition of the business software market. “This time, it looks to me that they have a pretty solid market definition,” Wall said. “They don’t appear to be playing games.”
University of Iowa law professor Herbert Hovenkamp said the Justice Department is following a set of new guidelines, issued late last year, that make it clearer when mergers should be challenged on antitrust grounds.
“I don’t think they are overreaching here,” Hovenkamp said. “If there is a broader message here, it’s that the government intends to enforce these new guidelines.”
Besides being forced to divulge potentially damaging information, AT&T will face other risks if it doesn’t settle with the Justice Department. Going to trial will take months, or even years—leaving the company in a legal limbo that could depress its stock price and cause customers and key employees to defect.
Also, as they try to prove their case, antitrust lawyers sometimes obtain confidential eMails that contain embarrassing snippets and present other evidence that can make companies look bad.
If AT&T persists, antitrust experts said that it’s better off going up against the Justice Department than the Federal Trade Commission, which also handles antitrust reviews. That’s mainly because lawsuits with the Justice Department are contested in federal courts. By contrast, the threshold for the FTC to block deals is generally lower, and the ensuing legal skirmishes occur in administrative law proceedings that drag on longer.
In its civil antitrust lawsuit, the Justice Department said the merger would stifle competition in the wireless industry. The deal, which is still under review at the Federal Communications Commission, would catapult AT&T past Verizon Wireless to become the nation’s largest wireless carrier, leaving Sprint Nextel as a distant third-place player and certain to struggle.
Morgan Reed, executive director of the trade group, Association for Competitive Technology, said AT&T has at least one key fact on its side: Deutsche Telekom has said it does not plan to continue to invest in upgrading the T-Mobile network to deliver faster wireless. That means “T-Mobile is not a competitor anymore,” Reed said.
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