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Department of Justice Blocks AT&T Acquisition of T-Mobile

This article was written by in Consumer. 11 comments.


Earlier this year, AT&T announced its plans to acquire T-Mobile, a plan that would change the landscape of wireless service in the United States and pave the way for an industry dominated by two large players: the new AT&T and Verizon Wireless. Today, the U.S. Justice Department stepped in, issuing a complaint to block the acquisition.

T-Mobile is currently a lower-cost option for wireless service, and the acquisition would most likely result in less competition and higher prices. Earlier this year, the Department of Justice blocked a merger between H&R Block and TaxAct, and the move was questioned when deals like the one between AT&T and T-Mobile were allowed to continue. As we can see now, the government is attempting to take the anti-duopoly approach across industries.

The Comcast acquisition of NBC was a different type of acquisition, and the Department of Justice did not seek to block it. The unified company can now control media from their creation to delivery, and this type of vertical integration seems to not be seen as anti-competitive, even though it could result in increased cost for the consumer and content exclusivity where none existed before. Deals like the one between AT&T and T-Mobile or between H&R Block and TaxAct take a marketplace and offer the consumer fewer choices.

Cell PhoneSprint, the distant fourth player in wireless, lobbied the Department of Justice to block the merger. While the block may be in the best interest of consumers, it’s definitely in the best interest of Sprint, likely to be pushed out of the market after the proposed acquisition. If the shoe were on the other foot, and AT&T were to buy Sprint, T-Mobile would be the company seeking to block the deal on behalf of consumers.

Consolidations and acquisitions can be good for the economy when there are major inefficiencies. Capitalists, for the most part, don’t want the government stepping in to block he progress of business and the growth of corporate empires. In theory, if one company gets so large that the consumer is left with poor choices, the market will eventually correct itself with new players willing to meet the neglected needs of the consumer. But when the cost of becoming a large enough presence in a market dominated by one or two companies is prohibitive, as it most likely is for offering cellular service due to the necessary infrastructure, blocking an acquisition might be a better solution than waiting a decade, a generation, or more for new competitors to re-shape the consumer landscape.

In its own words, the Department of Justice explains the decision:

The Department filed its lawsuit because we believe 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 their mobile wireless services.

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

This isn’t the only acquisition of concern recently; Capital One was the winning bidder for ING Direct. Although the deal would make Capital One “only” the sixth largest bank in the United States when measured by deposits, the government and regulators are not taking this deal lightly, seeking more comments from the public.

Do you think the Department of Justice should block the AT&T acquisition of T-Mobile?

Photo: whiteafrican
Department of Justice

Published or updated August 31, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 11 comments… read them below or add one }

avatar Investor Junkie

I’m somewhat torn on the DOJ action. On one hand T-Mobile more than likely will disappear or Sprint make an offer. The parent company stated they aren’t going to invest any more money into T-Mobile. On one hand AT&T would increase their coverage to areas in where T-Mobile has good coverage. Also both providers use the same cell tower technology so it’s a good fit. Whereas if Verizon or Sprint were to acquire it would be different technology.

As far as pricing and competition, one could say the industry is heavily regulated already big conglomerates are form because of the said regulations. Also in most industries that are matured, it is usually 3-4 major players. Which is what we have.

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avatar wylerassociate ♦162 (Cent)

I’m a T-Mobile customer & I like that DOJ blocked this merger. This merger is not good for customers because there is less competition & prices will go up as flexo wrote in the article. I think one of the bigger differences between this T-Mobile/AT&T merger & the NBC Comcast merger going through has to do with Comcast buying the vote of Jim Clyburn’s daughter (who is the only minority member of the FCC) by promising more hires of minorities within Comcast. And I also didn’t like the Comcast merger.

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avatar lynn ♦155 (Cent)

Agreed and said well.

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avatar eric ♦1,549 (Half-Dollar)

I agree with the DOJ on this. WIth only a few national wireless carriers left, I don’t think further consolidation will be good for consumers. I heard that AT&T will fight this decision in court. I hope consumers end up with more options at the end of the day.

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avatar Apex

When you compare cell phone plans among the major carriers their plans appear pretty darn similar. Too similar. Collusively similar. The smaller players like T-Mobile and Sprint have some differences but not enough. Letting the two bigs gobble up one of the 2 smallers and then either push out or gobble up the other one potentially seems to lead to a duopoly that will lead to almost zero real competition.

The DOJ confuses me on what they think is going to hurt consumers and what they think is not. This deal doesn’t look a whole lot different to me than others that have gone through. However, the cell phone industry is already hurting consumers in my opinion based on failing to compete and letting this deal go through seems like it would make that worse.

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avatar Murad Abel

I believe that the cost of entry into the cell phone carrier business would be too much to have a quick replacement of competitive services. I believe the acquisition does represent a threat to the American public.

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avatar Investor Junkie

How about wifi service as a possible replacement? Many cable companies are offering wifi service within their region. It is possible in theory to use Skype as a phone replacement and only use wifi in the process. Granted it’s not really a viable solution…yet.

Is it not possible another technology could leapfrog existing cellular technology? Especially now that the government auctioned off the huge spectrum of frequencies that are no longer needed for analog TV.

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avatar Apex

Sure it is possible. How about we let competition destroying mergers go through after the leapfrog? Fair enough?

I have heard multiple Republican/Capitalist purists defending this and all acquisitions. I share their viewpoints on a lot of things but as a free market capitalist I like there to be a market. When the players in the market get removed it’s not really free market capitalism anymore is it?

Capitalism does not work in a vacuum. It needs 2 things in my opinion. Good competition and fair rules: real competitors and a system of laws and rules that keep everyone playing by the same rules.

I think DOJ is probably right on trying to stop this merger.

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avatar Investor Junkie

Apex,

I’m not totally against this ruling. I’m just stating some arguments. With that said, couldn’t the reason we have duopolies (triopolies?) in this case is BECAUSE of government regulation? The telco market has never been a free market and certainly isn’t one now. Government has always been heavily involved with telco.

“How about we let competition destroying mergers go through after the leapfrog? Fair enough?”

That’s the thing, look at industries like the online music for example that have replaced CDs and made that industry pretty much extinct in less than 10 years. Before that it was CDs replaced records in a very short time period. It happens all the time. How can the government know ahead of time the new markets and if and when they will occur?

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avatar Apex

If regulation is causing oligopolies then I am certainly against. I am not aware of what regulations are doing this in telecom but I don’t know much about the regulation in the industry. I do know when the govt forced the large oligopolies in long distance to open up their lines to competition and the 10-10 numbers came in prices plummeted. I am all in favor of any similar action for cell phones but I don’t know if there is something similar that could be done effectively for cell phones at this time.

I am not in favor of the government protecting any industry.

As to the govt knowing when a new industry will replace an old, I am not sure what I said that makes you think that I think they can or that is a necessary thing for them to do. I am just saying that when all you have is records you don’t let the record companies remove all their competition. Once CDs start to take over then by all means, let the dying record companies combine, but not the CD companies, once online MP3′s replaces CD’s then let the CD companies join, etc.

You want iTunes buying out most of the competitors to online music? They have too much control the way it is now. That’s my point. You don’t let competition be removed on the argument that the technology might get replaced someday. As long as it is the prevailing technology, you prevent competition destroying mergers. Once it is no longer prevailing, then it doesn’t matter so much.

avatar qixx ♦1,895 (Half-Dollar)

There is already government regulation that requires cell phone companies to open their lines to competitors. This is why the various companies use different technologies for their phones. If their equipment is set to transmit X and only X signals and nobody else uses X signals then nobody can use their towers but them. Sure anybody (with X) can use the towers. If nobody else produces X phones then there is no worry. The same goes for any other phone technology you want to replace X with.

I don’t see how stopping this help the consumer. This gives better service to some. Those that resell their services gain. I’m not sure of which regional carries actually resell AT&T service (Boost Mobile, Virgin, etc resell someone’s services). And can anyone tell me the last innovation that came through T-Mobile? AT&T’s last major contribution would be the iPhone (i understand all they did was manage some deal with Apple).

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