NEW YORK—Telecommunications giant AT&T Inc., suffered a blow Wednesday as the Department of Justice (DOJ) blocked its proposed merger with rival T-Mobile USA.
In an announcement Wednesday, the DOJ filed an antitrust lawsuit to block the proposed $39 billion merger between the Dallas-based AT&T and the Bellevue, Wash.-based T-Mobile USA.
The proposed deal “would substantially lessen competition for mobile wireless telecommunications services across the United States, resulting in higher prices, poorer quality services, fewer choices and fewer innovative products for the millions of American consumers,” a DOJ statement said.
The decision is a blow to AT&T, which had hoped to become the nation’s biggest wireless carrier in terms of subscribers with T-Mobile in the fold, eclipsing current leader Verizon Wireless. AT&T and T-Mobile’s merger had been criticized by smaller rival Sprint Corp., which had argued that the merger would decrease competition in the market place and stymie innovation.
“Consumers across the country, including those in rural areas and those with lower incomes, benefit from competition among the nation’s wireless carriers, particularly the four remaining national carriers,” said Deputy Attorney General James M. Cole during a press conference on Wednesday. “This lawsuit seeks to ensure that everyone can continue to receive the benefits of that competition.”
Specifically, T-Mobile has become what the DOJ complaint dubbed “the No. 1 value challenger of the established big guys in the market,” as the company has consistently offered the least expensive plans across the board. T-Mobile also was the first mainstream U.S. carrier to introduce smartphones running the Google Android operating system.
While the deal has been blocked, AT&T does have a few options. One would be to appeal to U.S. courts, and another would be to appease DOJ by divesting more assets to lessen its size.
But if the deal does fall through completely, AT&T could be faced with a hefty payment. Under its agreement with T-Mobile’s German parent Deutsche Telekom AG, AT&T must pay Deutsche $3 billion in cash should the merger collapse.
In addition to the cash payment, AT&T would surrender certain wireless spectrum to T-Mobile as well as usage of its network for T-Mobile calls, which adds to the value of T-Mobile should the merger falter.
Deutsche began exploring options for its unprofitable T-Mobile USA arm as early as 2009, and reached a tentative agreement with AT&T this year.
Shares of AT&T fell on Wednesday after the announcement.
