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.
Sprint, 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?
Updated April 13, 2016 and originally published August 31, 2011.