Justice Department Blocks AT&T, T-Mobile Merger

AT&T says it's disappointed by the government's decision to block its acquisition of wireless rival T-Mobile. The Justice Department said Wednesday it would go to court to prevent the two companies from merging. The deal involves the country's second and fourth biggest wireless companies. U.S. officials say the deal would hurt competition and send wireless prices higher.

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Some other news: The fighter over a giant merger will now go to court.

AT&T says it's surprised and disappointed by the Justice Department's decision to sue, blocking the acquisition of AT&T's rival T-Mobile. Yesterday's announcement promptly sent AT&T shares down by four percent.

NPR's Jim Zarroli explains why the government turned aside AT&T's sales pitch.

JIM ZARROLI: AT&T had spent months lobbying the public and the government to support the $39 billion acquisition. But in the end, the Justice Department turned the company down. Here was Sharis Pozen, acting head of the department's antitrust division.

Ms. SHARIS POZEN (Antitrust Division, Department of Justice): A combination of AT&T and T-Mobile would eliminate this price competition and innovation. It would reduce the number of nationwide competitors in the marketplace from four to three.

ZARROLI: U.S. officials pointed out that AT&T and T-Mobile were direct competitors in all but three of the top 100 U.S. wireless markets. And T-Mobile, they said, was an especially aggressive and innovative rival. So, they said, allowing the companies to merge would almost certainly lead to higher prices and less choice for consumers.

The deal had been opposed by a wide range of consumer groups, and many were jubilant over the government's decision. Andrew J. Schwartzman is president of the Media Access Project.

Mr. ANDREW J. SCHWARTZMAN (President, Media Access Project): The fact that the Department of Justice took action is not all that surprising. The law could not be more straightforward.

ZARROLI: The government's decision poses big questions about where the wireless industry is going. Morgan Reed is executive director of the Association for Competitive Technology, which represents creators of mobile apps for cell phones. He notes there's a real need for wireless companies to expand and improve their data networks.

Mr. MORGAN REED (Executive Director, Association for Competitive Technology): Unless they build out the next generation, we're going to be crushed on capacity use.

ZARROLI: Reed says Deutsche Telecom, which owns T-Mobile USA, has shown little inclination to invest in its wireless network, but AT&T has. And allowing it to acquire T-Mobile would mean much more wireless capacity for the country as a whole. Reed says he's not so worried about the effect of the merger on AT&T's prices.

Mr. REED: I think that there's enough pressure from Verizon and others that I think that I'm not as worried about that. I'm more worried about being able to roll out the apps that depend on the data network.

ZARROLI: That was the same argument AT&T made to defend the merger. But consumer groups and some members of Congress remain deeply skeptical. They say AT&T's real motive for buying T-Mobile was to eliminate a low-priced competitor.

The case will now move into federal court. Jim Speta of Northwestern University Law School says the Justice Department will ask a judge to grant a preliminary injunction against the deal.

Mr. JIM SPETA (Northwestern University Law Professor): Ultimately, in this case, the government bears the burden of proof to prove that the merger will decrease competition and to get a court order that blocks the merger.

ZARROLI: AT&T can try to fight the injunction and ultimately even go to trial. But doing so may be a lot more trouble than it's worth. Speta says a trial would drag out the dispute.

Mr. SPETA: I think in this situation, the market may not be willing to wait the whole year or year-and-a-half that a trial would take, and the market itself may sort of force the resolution.

ZARROLI: AT&T's best option may be to reopen negotiations with the Justice Department and look for ways to appease some of its concerns about competition. U.S. officials said yesterday that their door was still open for more talks with the company. But even if AT&T can appease the Justice Department, the merger still has to be approved by the Federal Communications Commission, which has to decide whether the deal would be in the public interest. And the FCC said yesterday that it, too, has reservations about the merger.

Jim Zarroli, NPR News, New York.

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