Department of Justice Talks about Opposition to AT&T Purchase of T-Mobile USA

The Department of Justice today filed a civil antitrust lawsuit to block AT&T Inc.’s proposed acquisition of T-Mobile USA Inc.   The department said that the proposed $39 billion transaction would substantially lessen competition for mobile wireless telecommunications services across the United States, resulting in higher prices, poorer quality services, fewer choices and fewer innovative products for the millions of American consumers who rely on mobile wireless services in their everyday lives.
The department’s lawsuit, filed in U.S. District Court for the District of Columbia, seeks to prevent AT&T from acquiring T-Mobile from Deutsche Telekom AG.

“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.   “Consumers across the country, including those in rural areas and those with lower incomes, benefit from competition among the nation’s wireless carriers, particularly the four remaining national carriers.   This lawsuit seeks to ensure that everyone can continue to receive the benefits of that competition.”

“T-Mobile has been an important source of competition among the national carriers, including through innovation and quality enhancements such as the roll-out of the first nationwide high-speed data network,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.   

“Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer.” Mobile wireless telecommunications services play a critical role in the way Americans live and work, with more than 300 million feature phones, smart phones, data cards, tablets and other mobile wireless devices in service today.   

Four nationwide providers of these services – AT&T, T-Mobile, Sprint and Verizon – account for more than 90 percent of mobile wireless connections.   The proposed acquisition would combine two of those four, eliminating from the market T-Mobile, a firm that historically has been a value provider, offering particularly aggressive pricing.  

According to the complaint, AT&T and T-Mobile compete head to head nationwide, including in 97 of the nation’s largest 100 cellular marketing areas.   They also compete nationwide to attract business and government customers.  AT&T’s acquisition of T-Mobile would eliminate a company that has been a disruptive force through low pricing and innovation by competing aggressively in the mobile wireless telecommunications services marketplace.

The complaint cites a T-Mobile document in which T-Mobile explains that it has been responsible for a number of significant “firsts” in the U.S. mobile wireless industry, including the first handset using the Android operating system, Blackberry wireless email, the Sidekick, national Wi-Fi “hotspot” access, and a variety of unlimited service plans.   

T-Mobile was also the first company to roll out a nationwide high-speed data network based on advanced HSPA+ (High-Speed Packet Access) technology.  The complaint states that by January 2011, an AT&T employee was observing that “[T-Mobile] was first to have HSPA+ devices in their portfolio…we added them in reaction to potential loss of speed claims.”

The complaint details other ways that AT&T felt competitive pressure from T-Mobile.   The complaint quotes T-Mobile documents describing the company’s important role in the market:

• T-Mobile sees itself as “the No. 1 value challenger of the established big guys in the market and as well positioned in a consolidated 4-player national market”; and
• T-Mobile’s strategy is to “attack incumbents and find innovative ways to overcome scale disadvantages.   [T-Mobile] will be faster, more agile, and scrappy, with diligence on decisions and costs both big and small.   Our approach to market will not be conventional, and we will push to the boundaries where possible. . . . [T-Mobile] will champion the customer and break down industry barriers with innovations. . . .”

The complaint also states that regional providers face significant competitive limitations, largely stemming from their lack of national networks, and are therefore limited in their ability to compete with the four national carriers.   And, the department said that any potential entry from a new mobile wireless telecommunications services provider would be unable to offset the transaction’s anticompetitive effects because it would be difficult, time-consuming and expensive, requiring spectrum licenses and the construction of a network.

The department said that it gave serious consideration to the efficiencies that the merging parties claim would result from the transaction.   The department concluded AT&T had not demonstrated that the proposed transaction promised any efficiencies that would be sufficient to outweigh the transaction’s substantial adverse impact on competition and consumers.  Moreover, the department said that 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.

DoJ statement

T-Mobile Subscribers Have Fled

AT&T will undoubtedly file its own lawsuit in the wake of the U.S. Department of Justice lawsuit opposing the purchase of T-Mobile USA on antitrust grounds. The Federal Communications Commission, for its part, also must approve the deal, and hasn't spoken yet.

T-Mobile will gain from a deal failure, to the tune of $6 billion, including $3 billion in cash, spectrum rights and roaming agreements with AT&T. But T-Mobile's fundamental problem--that it is a rather weak fourth contestant in a market lead by AT&T and Verizon Wireless, will not change. When all is settled, relating to the proposed AT&T take-over, it is conceivable T-Mobile USA will continue to face strategic issues, adding yet another element of uncertainty to the U.S. mobile business.

T-Mobile’s revenue and total subscribers took a hit from April to June 2011, as the carrier’s pending merger with AT&T apparently drove away customers.

The Bellevue, Wash.-based carrier’s revenue dropped only slightly in the second quarter, but the company’s profits fell by nearly half from the same period last year. T-Mobile also reported it had lost 50,000 customers, bringing its total to 150,000 lost for the year. The carrier lost just 56,000 subscribers in all of 2010.

T-Mobile has made several moves to attract new customers and hold onto existing ones over the past several months. The carrier increased its 4G network to reach 170 million consumers in the U.S., came up with special offers like one year of free data for new subscribers and even brought back unlimited data options to differentiate itself from AT&T and Verizon. Despite T-Mobile’s efforts, however, customers still leave the carrier in droves.

T-Mobile Subscribers Flee as AT&T Merger Looms

AT&T Break-up Fee is $6 Billion

AT&T will have to pay Deutsche Telekom $6 billion as a break-up fee in case the Department of Justice lawsuit opposing the purchase of T-Mobile USA fails to gain regulatory approval, as it now has.

The $6 billion break-up fee would include $3 billion of cash and about $2 billion worth of spectrum, plus a roaming agreement valued at $1 billion.

T-Mobile USA appears to have been doing little over the past several months other than preparing to be acquired, losing customers and marketing focus. If the deal falls through, as now seems likely, it will gain spectrum it needs for 4G services, plus cash and roaming rights, but still will be a lagging number-four player in the U.S. market.

AT&T break-up fee is $6 billion

U.S. Files Antitrust Complaint to Block AT&T, T-Mobile Merger

The U.S. Department of Justice, whose approval is necessary for AT&T to buy T-Mobile USA, has filed a lawsuit to block the $39 billion acquisition of T-Mobile USA, saying the deal would “substantially lessen competition” in the wireless market.

The Justice Department complaint was filed Aug. 31, 2011 in federal court in Washington, D.C.. The U.S. is seeking a declaration that Dallas-based AT&T’s takeover of T-Mobile, a unit of Deutsche Telekom AG (DTE), would violate U.S. antitrust law and a court order blocking any arrangement implementing the deal.

“AT&T’s elimination of T-Mobile as an independent, low- priced rival would remove a significant competitive force from the market,” the DoJ said in its filing.

U.S. DoJ Files Suit to Block AT&T, T-Mobile Merger

Dept. of Justice to Block AT&T Purchase of T-Mobile USA Deal?

There are new rumors that the U.S. Department of Justice will definitely oppose the AT&T attempt to purchase T-Mobile USA. If the DoJ does not clear the deal on antitrust grounds, it is not yet clear what other alternatives might be available to craft a deal that would gain approval. More to follow.

Amazon Could Launch 7-Inch and 10-Inch Tablets

Amazon’s rumoured venture into the tablet market will reportedly see it launch two models – a seven-inch Android tablet due to start shipping in October and a larger 10-inch model which is expected to go into mass-production in the first quarter of next year, Digitimes reports.

The strategy would seem to indicate that Amazon is covering its bases. Many e-reader users who have experience with both lighter seven-inch devices and the larger 10-inch devices say it is easier to read on a seven-inch device. But many users may want the e-reader application, but intend to use the tablet more generally, in which case, larger screens are better.

Piper Jaffray analyst Gene Munster has predicted that an Amazon Android tablet would perfectly compliment the retail giant’s existing Kindle devices to help the company sell as many as 2.4 million portable devices in 2012.

Although Amazon has yet to confirm it is working on a tablet device, industry analysts and component suppliers have already provided insights into the company’s Android tablet, suggesting that the company could also be working on a mobile handset.

Munster bases his predictions on a recent report by Creative Strategies analyst Tim Bajarin, suggesting that Amazon could release a 10-inch tablet, and possibly a seven-inch tablet, at the end of this year to coincide with the holiday season. Most observers think Amazon will offer subsidized versions intended to entice consumers to buy Amazon content.

Amazon's tablet strategy could see 2012 launch for 10-inch model:

Context a Key Feature of Mobile App Use

The smart phone is an unusual consumer device in that it is unusually well suited for development and use of all sorts of location-aware applications, allowing features and content to be customized for the actual user context.