AT&T announced its interest to acquire T-Mobile On March 20, 2011, on a cash transaction of $39 billion. This merger process involved the transfer of license from DT to AT&T. Hence a legal process had to be followed by incorporating legal bodies like the Federal Communication Commission (FCC) and the Department of Justice’s Antitrust Division (DOJ). FCC has a role of assigning licenses and authorizations, and also FCC requires that both parties make an affirmation that their emergence is in the best interest of the public. At the same time, DOJ scrutinizes the standard competition concerns. The merging parties claimed that they had a better consumer and public interest benefits. These benefits included less competitive problems, the furtherance of FCC’s broadband goals, and the creation of large synergies and jobs. Below is the summary of the AT&T and T-Mobile merger case.
DOJ filed a suit on August 31, 2011, aiming at permanently stopping the merge. After listening to the petition, on November 22, 2011, the FCC chairman announced that he would like to temporarily pause the merger for an administrative hearing to determine whether it would be in the public interest. From the research done by DOJ, it was evident that AT&T and T-Mobile were a serious threat to one of the four nationwide telecommunication service providers, while remaining the largest wireless carrier, surpassing Verizon by far. DOJ claimed that T-Mobile was seen as a disruptive force, which causes competitive pressure on prices and innovation, like on larger rivals, and upsets the status quo.
Synergies that had been proposed in the merger between AT&T and T-Mobile in the petition AT&T made to the FCC to acquire T-Mobile were essential in various ways. AT&T reiterated that the transaction would lead to substantial cost synergies, which have been estimated to be above $39 billion, and this was more than the value of the transaction. The synergies were identified in four categories which are network, subscriber-related, capital expenditure, and cost savings synergies in the area of customer support and general and administrative costs. AT&T claimed that the merger would reduce the capacity constrain that may emerge due to the increased need for data services, which cannot be achieved by a single company operating as the competitor of the other firm. AT&T’s support for synergy networks is based on an engineering and economic model, which helps compare the costs that would arise with, and without the merger.
In support of the merger AT&T, and T-Mobile claimed that merging their spectrum holdings and networks helped both the company’s handle the various challenges, like the lack of a way to supply 4G LTE network technology by T-Mobile, and AT&T’s network spectrum and capacity constraints. They presumed that the merger would turn two companies that are experiencing capacity-constrained to combine their resources, thus increasing their output, improve quality, and lower prices. The argument of AT&T concerning the merger was that it would help them supply LTE to over 97% of Americans. This is approximately 55 million more Americans compared to AT&T’s current plans, which only cover about 80% of the Americans without the merger.
DOJ opposes the merger stating ‘that it will weaken the power of competition. From the consumers’ perspective, it will reduce the wireless telecommunication services in 97 local markets. From suppliers’ perspective, it will lessen the government wireless telecommunications services in the national market enterprises. DOJ claimed that the actual and potential competition between AT&T and T-Mobile would be eliminated, increasing prices. The quality and quantity of services would be lower due to reduced incentives to invest in capacity and technology improvements. Innovation and product variation l would also be reduced. Therefore, DOJ concluded that the merging parties could not demonstrate satisfying and specific ways of how less competition would help the consumers and the public.
On November 23, 2011, AT&T wrote a letter to withdraw their applications for a transfer of licenses. FCC accepted the application and granted the request to withdraw without prejudice On November 29, 2011, which also was to allow the parties to make applications at a later date. The FCC concurrently released a staff report that asserted that the merger between the two companies would harm competition and that AT&T and T-Mobile had not sufficiently demonstrated countervailing efficiencies and benefits that would result in the merger. Therefore, not being in the public interest. AT&T and Deutsche Telecom later announced their plan of still pursuing the merger. They vigorously contested the DOJ complaint and planned to resubmit applications for the transfer of licenses from Deutsche Telecoms to AT&T at a later date after solving the DOJ lawsuit.
The lawsuit scheduled the trial date to be in February 2012. However, on December 12, 2011, the presiding judge stopped the proceedings temporarily following requests made by AT&T and DT. This allowed AT&T and T-Mobile to have time to assess their options, a ruling which DOJ’s also agreed with, to be effective, and should be honored. AT&T agreed with DT to end its bid to acquire T-Mobile On December 19, 2011.