Justice Department Sues AT&T

AT&T's plan to take over T-Mobile is in trouble. The Justice Department filed suit Wednesday to block the $39 billion deal. Justice officials said combining the second and fourth largest U.S. cell phone companies would hurt competition — and likely keep prices higher than they would otherwise be.

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MELISSA BLOCK, host: Now to news today that the Justice Department has moved to block the proposed merger of AT&T and T-Mobile. The $39 billion deal would turn AT&T into the nation's largest wireless carrier. But the Justice Department says the deal is anti-competitive and would be bad for consumers. AT&T insists it will fight the government's decision in court. More now from NPR's Wendy Kaufman.

WENDY KAUFMAN: In its lawsuit filed this morning, the government didn't mince words, describing the deal as bad for just about everyone. T-Mobile is currently the fourth largest wireless carrier in the country. And senior Justice Department official Sharis Pozen described T-Mobile as an industry innovator, and a price leader and a company that AT&T should not be allowed to gobble up.

SHARIS POZEN: Eliminating this aggressive competitor, which offers low pricing and innovative products, would hurt consumers, businesses and government customers that rely on a competitive marketplace to provide them with the best products, the best prices.

KAUFMAN: But AT&T has argued the deal would be good for consumers and good for business. It said the merger would mean more bandwidth and better mobile infrastructure and would create jobs. It launched a potent political and public relations campaign to make its case with a diverse army of supporters, everyone from governors and union workers to Microsoft. But the government cast their arguments aside and relied on the provisions of the anti-trust law itself, says lawyer and regulatory expert Rebecca Arbogast of Stifel Nicolaus.

REBECCA ARBOGAST: We have all known that there was serious skepticism among the staff of the Department of Justice, and the question was whether the political atmosphere was going to overcome that. And it didn't.

KAUFMAN: Reaction to the lawsuit was predictable. The Association for Competitive Technology said the decision to sue was misguided and will mean the multibillion-dollar investment AT&T was prepared to make in improving T-Mobile's network will never occur. On the other hand, the Media Access Project, which often advocates for consumers, praised the Justice Department's action. Here's the group's Andrew Jay Schwartzman.

ANDREW JAY SCHWARTZMAN: By any traditional anti-trust standard, a transaction that would create a duopoly in which two companies, AT&T and Verizon, would have 80 percent of the wireless market and shut out an aggressive competitor, like T-Mobile, is unlawful.

KAUFMAN: So now what? AT&T said today it was surprised and disappointed by the Justice Department's move, but Justice Department official Pozen said the company had been told the government had serious concerns.

POZEN: Our door is open. If they want to resolve those concerns, we can certainly do that. Here, we filed a lawsuit, and we're going to proceed in court. We'll see what happens next.

KAUFMAN: If the deal doesn't go through, AT&T would have to pay a breakup fee to T-Mobile of $3 billion. It's a huge amount, and unlike most companies whose deals are blocked, AT&T is not likely to give up. And lawyer Arbogast says it's hard to imagine an out-of-court settlement.

ARBOGAST: There's a lot of discussions about conditions and things that could be divested, but I think the Department of Justice would view those all as fairly trivial. And it's unclear whether there is any way that the deal could be restructured in a way the DOJ would allow it to go forward.

KAUFMAN: Even if a deal were reached, AT&T would still need a green light from the Federal Communications Commission, which is also reviewing the merger. Wendy Kaufman, NPR News.

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