JEFFREY BROWN: And we turn to a move by the government to block a major merger.
Ray Suarez has the story.
RAY SUAREZ: The proposed $39 billion merger between AT&T and T-Mobile would have created the largest wireless company in the country. But, today, the Department of Justice filed suit to block the deal, saying the merger would lead to higher prices, poorer quality services, fewer choices, and fewer innovative products for the millions of American consumers.
AT&T vowed to fight the decision and argued the merger would improve access to wireless services and result in billions of additional investment and tens of thousands of jobs.
For more on all this, we’re joined by Cecilia Kang, technology reporter for The Washington Post.
And, Cecilia, first, let’s get the outline of this deal, the original merger, and why AT&T wanted it.
CECILIA KANG, The Washington Post: Sure.
The merger itself was proposed last March. AT&T proposed to buy T-Mobile for $39 billion, as you said. And really what it would do is it would combine the two — two of the four largest national wireless carriers into one company with 132 million customers at a time when Americans are relying on their cell phones and wireless tablets and smartphones more than ever.
One in four homes, for example, Ray, rely on cell phone service, as opposed to wire line plain old telephones. They just cut the cord on those phones, and they rely only on their cell phones. So it was a very interesting time. And AT&T — time for the announcement and the merger — and AT&T clearly sees wireless as its future.
RAY SUAREZ: With the Justice Department heading to court to block the merger and with the grounds it laid out, is this deal effectively dead?
CECILIA KANG: No, not at all.
And this is sort of the funny way or the interesting way that Washington works. This is probably the biggest hurdle to come along for AT&T and T-Mobile in its quest to merge. But this is by no means the end of the story for these companies. AT&T has vowed to challenge this lawsuit in court.
And what it could do is, it could come up with a settlement. It could concede to some conditions that the Justice Department may be seeking. The FCC, the Federal Communications Commission, also has to weigh in on this deal. But both agencies, both the Justice Department and the FCC, have to approve the deal.
So this is a big hurdle. We have to hear from the judge at the U.S. district court of the District of Columbia on her decision on this case. But this is just one more step in the process, but a significant one. This is also politically in sending a message to the companies that the Justice Department really is making an unprecedented step, especially in this administration, when it has approved so many other mergers that has come before it, including Comcast’s merger, joint venture with NBC Universal, Google’s acquisition of a travel company to buy ITA.
This is the first time the Justice Department has made such an audacious move to block a merger.
RAY SUAREZ: Well, I’m glad you mentioned these other mergers, because in some of those cases, the first salvo, if you will, was the Justice Department or the regulator, in some cases, the FCC, saying if you meet certain conditions, then we can talk about the merger.
CECILIA KANG: That’s right.
RAY SUAREZ: The Department of Justice announcement seemed a lot more categorical than that, like it wasn’t open to massaging this deal before it goes forward.
CECILIA KANG: That was the most striking thing to come from both the press conference with antitrust officials and the complaint itself. The Justice Department said that in any way — in every way that it looked at the merger, every test that it posed, that the merger actually failed to meet any of its antitrust standards.
And the timing of the merger — just a few months after it was announced, the merger was announced, for the Justice Department to really kind of quickly come up with a lawsuit to block the deal really signaled to antitrust experts who are following this merger that the Justice Department doesn’t want to find some sort of middle ground, that they really are serious about trying to block this deal.
RAY SUAREZ: Is there a lot at stake here for AT&T beyond simply not acquiring T-Mobile, if this deal were not to go through?
CECILIA KANG: Sure, there certainly is. There is actually cash and there are assets at stake. If AT&T doesn’t close this deal by September, 2012, it will have to pay in cash $3 billion to Deutsche Telekom — that’s the parent company of T-Mobile — and also hand other about $3 billion in assets that includes wireless spectrum radio airwaves and other assets.
So there’s a lot of money at stake here. There’s real obligations. There are things on the table. That said, this is a company that makes about $30 billion every quarter, so $6 billion is a significant amount of money and a significant amount of money that it would lose. But one theory is that it will also hobble the competitor for about a year through this regulatory process, and in that way would could win in some ways even if the merger is not approved.
RAY SUAREZ: With this delay, is T-Mobile in any kind of trouble? Isn’t it sort of blocked from looking for other suitors until the AT&T deal is settled one way or the other?
CECILIA KANG: It certainly poses questions about the future of T-Mobile going forward. It was already a company that was in trouble before AT&T decided to try to buy it last march.
Sprint was rumored — Sprint Nextel was rumored to try to buy it. The problem is, is that, at this point, it will be difficult for any other company to have either the cash and the assets or the wherewithal to try to merge with a company like T-Mobile at this point, though you may see some interesting new players come about that will show interest.
Right now, the communications industry is going through tremendous change. You’re seeing cable companies becoming media companies, satellite companies becoming TV, Internet streaming companies and other companies just changing really their businesses, Microsoft becoming a video voice communication service with its acquisition of Skype. There’s tremendous change.
So who knows? There may be a suitor in the works that we might all be surprised to hear from with Deutsche — with T-Mobile if this deal doesn’t go through with AT&T.
RAY SUAREZ: Cecilia, quickly, before we go, we have talked about the companies themselves, about the different views of what will happen to the customer. What about the companies that make the phones, the device-makers?
CECILIA KANG: Sure.
The device-makers have an interesting relationship with the carriers. They are at once beholden to the carriers, because the carriers, AT&T, Verizon, for Apple, their negotiation with Apple, for example, for the iPhone, they pick up a lot of the cost for the marketing and sales for these devices. And that’s a good thing for these device manufacturers.
And so they have to cooperate and partner up with them. What happens when you reduce the market for national carriers from four to three is that these device-makers, Motorola, Apple, Google, other device-makers that are coming out of the woodwork, Nokia, they have fewer companies to negotiate with and they have fewer tools, really, in making sure that they get their devices out to as many people as they want, that they have — they can put more money into R&D, and to cut down on the costs that they have to incur to market those devices, to sell them to consumers around the world.
RAY SUAREZ: Cecilia Kang of The Washington Post, thanks for joining us.
CECILIA KANG: Thank you.