We just heard today that the U.S. Department of Justice has filed suit to block the AT&T/T-Mobile merger. While we haven’t read the complaint in detail yet, we have had a couple of immediate reactions:
- Yankee Group’s analysis using independent survey data foresaw increased concentration, less choice, and higher prices because of this merger. We were pleased to see that The DOJ came to the same conclusions based on the more extensive data it received that was not made available to the public due to corporate privacy considerations. In short, our survey data set didn’t appear to miss any big important issues in the decision.
- We’re not terribly surprised that the DOJ has sued to block this merger. The DOJ is quite transparent in how they evaluate mergers for anti-trust concerns, and they publish those criteria on their Web site (you can read them yourself at http://www.justice.gov/atr/public/guidelines/hmg.2010.html. We had used those criteria in our analysis, so we would have been hugely surprised if the Department of Justice had chosen to ignore their own guidelines.
So what does this lawsuit mean for the deal overall? Based on the information I’ve read from the DoJ complaint and our own analysis, I have four immediate thoughts:
- This merger as currently proposed is dead. The DoJ isn’t bringing this suit just to show that they put up a good fight, after which they’ll approve the merger. The issues they raise are fundamental competitive ones, and they can’t be solved by simple spinoffs or spectrum sales. This deal is going to have to be restructured before it’s approved by the DoJ and the FCC.
- AT&T has incentive to try again. The merger contract forces AT&T to pay a $3 billion breakup fee to T-Mobile if this deal doesn’t go through. As such I would expect AT&T to propose modifications to the deal to try to encourage approval.
- T-Mobile’s value has now gone up. The fact that the DoJ is suing to block this merger demonstrates that T-Mobile plays an important role in ensuring competition in national GSM service in the U.S. It therefore may now be more valuable than it was before the merger. With AT&T blocked in a wholesale acquisition of T-Mobile, T-Mobile may attract more diverse suitors such Comcast or Google who may be willing to pay for access to T-Mobile’s network and subscriber base.
- The biggest result from today’s lawsuit may be the creation of jobs. The 5,000 call center jobs AT&T has promised to repatriate to the U.S. should the merger be approved won’t make much difference; those are a drop in the bucket compared to the 40,000 T-Mobile employees whose jobs would be at risk in a merged operator. But today’s lawsuit could be renamed the 2011 Full Legal Employment Act for the effect its going to have on the legal profession. With $39 billion at stake and the Department of Justice suing AT&T, we should expect thousands of lawyers to have plenty of work for years to come.