- The Washington Times - Wednesday, August 31, 2011

AT&T isn’t ready to give up on a proposed $39 billion merger with T-Mobile just yet.

The nation’s second-largest wireless carrier, which shook the industry in March by agreeing to buy T-Mobile from German communications giant Deutsche Telekom, vowed to fight to save the merger after Justice Department officials moved to block the deal Wednesday. T-Mobile also said it would join the fight to get the merger approved.

The administration’s decision to challenge the deal, which would combine the No. 2 and No. 4 players in the booming wireless communications industry, sets up the biggest antitrust fight since President Obama took office, with high-powered lobbying expected on both sides in the legal battle ahead.

“We are surprised and disappointed by today’s action, particularly since we have met repeatedly with the Department of Justice and there was no indication from the DOJ that this action was being contemplated,” said Wayne Watts, AT&T senior executive vice president and general counsel, in a statement.

“We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed. The DOJ has the burden of proving alleged anti-competitive affects, and we intend to vigorously contest this matter in court.”

The Justice Department contests the merger, which would change the landscape of the wireless industry, arguing it would reduce competition and raise prices for cellphone customers. If the deal had been approved, it would have cut the industry back to three major companies — AT&T, Verizon and Sprint. Some experts said Sprint would then have become a distant third carrier and could have even been forced out of business, leaving only two power players in the market.

“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 Cole.

Markets were quick to react to the stunning news about one of the biggest merger deals of the year: AT&T’s stock was down more than 4 percent on the announcement, while shares of Deutsche Telekom AG fell 7.6 percent on the German stock market.

Experts say this is a big blow to AT&T, but the deal is not dead. If AT&T restructures the deal, likely giving up more spectrum and markets, it could be approved.

“I don’t think this deal is dead,” said Jeff Kagan, a wireless and telecom industry analyst based in Atlanta. “Not yet. I think the government is simply saying this deal, the way it is structured, will not be approved. So AT&T must change the structure, and they will. They will reintroduce this deal, and it will be under consideration again.”

AT&T argues the merger would create jobs and improve wireless service for customers. The company has promised to expand its 4G LTE mobile broadband network to another 55 million Americans so it would cover 97 percent of the population. That, in turn, would lead to billions in investment.

“We remain confident that this merger is in the best interest of consumers and our country,” Mr. Watts said. “The facts will prevail in court.”

T-Mobile plans to support AT&T in its fight with the Justice Department.

“Deutsche Telekom is very disappointed by the DOJ’s action, and will join AT&T in defending the contemplated merger against the complaint in court,” spokesman Philipp Schindera said in a statement. “DOJ failed to acknowledge the robust competition in the U.S. wireless telecommunications industry and the tremendous efficiencies associated with the proposed transaction, which would lead to significant customer, shareholder, and public benefits.”

Sprint has voiced the most opposition to the deal, fearing it would fall further behind in the industry.

“The DOJ today delivered a decisive victory for consumers, competition and our country,” Sprint’s Vonya B. McCann, senior vice president of government affairs, said in a statement. “By filing suit to block AT&T’s proposed takeover of T-Mobile, the DOJ has put consumers’ interests first.”

Shares of Sprint rose 6 percent Wednesday after news of the Justice Department’s injunction to block the merger.

“Sprint is doing very well today,” Mr. Kagan said. “Sprint’s shares will soar on this news. This is a big win for Sprint and CEO Dan Hesse, since they have been opposed.”

There is speculation that Sprint might attempt to purchase T-Mobile itself if the deal falls through in court because that would provide a more level playing field for the three remaining carriers.

“I think Sprint and T-Mobile getting together would make more sense because it would be a bigger, stronger competitor to Verizon and AT&T,” Mr. Kagan said.