Opinion

Felix Salmon

Justice makes the right decision on AT&T

By Felix Salmon
August 31, 2011

The Justice Department’s official complaint seeking to stop AT&T from taking over T-Mobile minces no words:

T-Mobile in particular – a company with a self-described “challenger brand,” that historically has been a value provider, and that even within the past few months had been developing and deploying “disruptive pricing” plans – places important competitive pressure on its three larger rivals, particularly in terms of pricing, a critically important aspect of competition… unless this acquisition is enjoined, customers of mobile wireless telecommunications services likely will face higher prices, less product variety and innovation, and poorer quality services due to reduced incentives to invest than would exist absent the merger. Because AT&T’s acquisition of T-Mobile likely would substantially lessen competition in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18, the Court should permanently enjoin this acquisition.

One thing which fascinates me is the way in which neither the complaint nor the press release makes any mention of the fact that the proposed deal would give the merged company substantially all of the market in GSM cellphones — the only ones which work in most of the rest of the world. Americans who travel internationally pretty much have to get their cellphone service from one of these two providers — and they’re highly sensitive to exorbitant international roaming fees. Which would almost certainly go up in the event of this merger.

The noises coming from the FCC in the wake of this suit are supportive, with FCC chairman Julius Genachowski saying that he too has “serious concerns about the impact of the proposed transaction on competition.” He adds for good measure that “vibrant competition in wireless services is vital to innovation, investment, economic growth and job creation, and to drive our global leadership in mobile.”

AT&T hasn’t officially given up, but I can’t see it winning this particular fight with the law. This, then, is a good day for the American consumer, not to mention a great day for Sprint and Verizon. AT&T and T-Mobile have both put enormous amounts of management time and shareholders’ money into putting this merger together, all of which will now be for naught. Rather than fight the inevitable, they should go back to fighting each other where it matters: in the marketplace.

Comments
15 comments so far | RSS Comments RSS

While AT&T and T-Mobile have a good deal of the GSM phones, they don’t have as much of a stranglehold as you imply. Verizon has a range of devices available: http://b2b.vzw.com/international/GlobalD ata/devices.html#ID And I’ve used both Blackberries and Droid phones through Verizon internationally (both voice and data) in the UK and Spain (both with flat-rate daily unlimited data). Is it a killer list? Not really but it’s sufficient for a biz traveler. It’s one reason why I went Incredible 2 versus an overhyped underperforming two-core 4G battery drainer.

Posted by jsullivan | Report as abusive
 

…wondering if AT&T’s $3B cash guarantee to T-Mobile now means we T-Mobile subscribers can expect better nationwide coverage?

Posted by GRRR | Report as abusive
 

Verizon offers phones with Global coverage for international business travelers (I am one). I’m not totally sure about the technology but I believe it just uses CDMA where it can and GSM otherwise.

I think what this lawsuit does not consider is whether T-Mobile can actually survive on its own without the merger. It’s the smallest player in a business with enormous returns to scale and because of the technology issues, AT&T was likely its only possible merger partner. It’s a bit hard to see how Deutsche Telecom justifies much if any further investment in it.

Posted by right | Report as abusive
 

Global coverage: US antitrust laws generally protect US consumers in US markets. That we have to pay more in non-US markets may not be relevant under US antitrust laws.

Posted by 3oosion | Report as abusive
 

I use the wireless company that Consumer Reports has rated number one for customer service, which is not ATT, or T-Mobile, or Verizon for that matter. For my international travels, I use a prepaid GSM SIM from a third party provider. Granted, it means that I have a different phone number in Europe, but those who need to know that number have it. It’s a small price to pay for staying away from the ATT and Verizon headaches.

Posted by Curmudgeon | Report as abusive
 

Felix, they were fighting each other in the marketplace. A takeover is a valid marketplace action. Having it blocked is an anti-market intervention.

Further, you have no clue what would happen if the merger succeeded.

Posted by wfl | Report as abusive
 

This article forgets to mention one other aspect. Before the merger was even announced, T-Mobile was not in great shape, and Deutsche Telekom had pretty much given up on it. O.K. now the merger doesn’t happen, so what happens to T-Mobile? Maybe they will go on to compete, but not a lot has changed since before the merger. If they close down, that isn’t going to help competition either. So how many GSM operators would be left then? A sick T-Mobile is no better for consumers than a T-Mobile merged with AT&T.

Posted by Al385 | Report as abusive
 

This article forgets to mention one other aspect. Before the merger was even announced, T-Mobile was not in great shape, and Deutsche Telekom had pretty much given up on it. O.K. now the merger doesn’t happen, so what happens to T-Mobile? Maybe they will go on to compete, but not a lot has changed since before the merger. If they close down, that isn’t going to help competition either. So how many GSM operators would be left then? A sick T-Mobile is no better for consumers than a T-Mobile merged with AT&T.

Posted by Al385 | Report as abusive
 

You raise an interesting point, and it does appear to be something the DOJ has considered. In paragraph 42 of the complaint, discussing direct competition between AT&T and T-Mobile, the DOJ alleges that “[f]or some customers, such as enterprises whose employees travel extensively internationally, AT&T and T-Mobile are particularly close substitutes.” The CDMA v. GSM issue is not explicitly mentioned, but I’m confident that is at the heart of this particular allegation.

Posted by nortonjacobs | Report as abusive
 

“Further, you have no clue what would happen if the merger succeeded.”

With that kind of logic, any mergers should be approved. Nobody has any idea what would happen if the merger succeeded, or if the merger failed. It is called the future. Nothing is certain, we can only access likelihoods. The likely behavior in this case is not good for American consumers.

“Felix, they were fighting each other in the marketplace. A takeover is a valid marketplace action. Having it blocked is an anti-market intervention.”

The benefits of the free market do not occur when there are only a few merchants in the marketplace. There is not enough merchants as it is now. The anti merger decision is pro market.

Posted by ReuterReader76 | Report as abusive
 

Hmmm. I’ve seen this before. Ticketmaster v. LiveNation. Somehow or another, this deal will get done. Who ya gotta bribe around here to build a telecom monopoly?

Posted by DwDunphy | Report as abusive
 

@right, T-Mo can survive on its own, if DT chooses to spin them off. It’s hard to say they are on the verge of dying, when ATT values them at $39 billion. If DT doesn’t want them, they can always find another customer at a lower price, or spin them off in an IPO – in either case, they won’t disappear unless a bigger carrier makes that happen.

If the acquisition is blocked, DT can easily justify at least another $3 billion in investment in T-Mo, because that is what ATT will give them, in addition to $3 billion worth of spectrum and roaming credits.

All this talk about T-Mo doing horribly is not true – they just weren’t performing as well as DT likes. The proposed acquisition by ATT has scared off a lot of customers, as many T-Mo subscribers specifically do NOT want ATT service, and left rather than be acquired by them.

Posted by KenG_CA | Report as abusive
 

The U.S. Goverment got one right… I’m totally pumped. The obvious logic behind this merger was to remove a low priced competitor and gain scarce spectrum.

In addition to sucking in more customers, an even larger AT&T would have even more clout with equipment providers and Cell Tower opperators.

The best news of the day is that with the merger firmly on the rocks, we can look forward to more commercials with that stunningly attractive lady in those cute dresses!

Did anyone see the AT&T CEO on CNBC today promising to onshore a whopping 5,000 call center jobs if the merger is approved. He was also touting the massive U.S. CapEx spending bender he was prepared to go on if the merger was approved. It will be so interesting if he goes rogue… I’ll be honest if it was me I’d take my ball and run straight home to my new Swiss chalet. “Oh I can’t grow my revenues via merger in a saturated market… well then I guess I’ll be spending 2 billion on capex instead of 20… and I’ll spend that newfound 18 billion on aquisitions in LatAM, the Middle East, and Asia.”

Keep following this one… could get real interesting!

Posted by y2kurtus | Report as abusive
 

“Further, you have no clue what would happen if the merger succeeded.”

Plenty of countries with 3 providers.
I think that would be a place to start.

Good argument though…
Oh wait, no, it was crap.

Posted by TinyTim1 | Report as abusive
 

@Keng_CA says “All this talk about T-Mo doing horribly is not true – they just weren’t performing as well as DT likes.”

T-Mobile has not had an RoE above 7.1% in any year since 2006. For the last 12 months it has been 4.1%. For comparison, AT&T and Verizon (and indeed almost any healthy company) have RoE in the teens.

If you were a manager or shareholder of Deutsche Telekom, how would you justify investing the $3B settlement in a business that is returning 4-7% rather than distributing it to shareholders or finding a better use for the capital?

Posted by right | Report as abusive
 

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