US regulatory experts believe that AT&T will have to rethink its approach to remedies after the US Department of Justice’s decision to file a civil antitrust lawsuit against the US$39bn acquisition of T-Mobile USA. While the US district court, the…
US regulatory experts believe that AT&T will have to rethink its approach to remedies after the US Department of Justice’s decision to file a civil antitrust lawsuit against the US$39bn acquisition of T-Mobile USA.
While the US district court, the companies involved and the DOJ will prepare for a full-fletched trial, there is also a possibility that a settlement will be reached, which could result in the court case being dropped and the merger going ahead.
Two regulatory experts questioned by TelecomFinance pointed out that AT&T’s interest to settle the case might be increased by the costly break up agreement (reportedly up to US$6bn) with T-Mobile, if the deal should fail to go through.
Andrew Lipman, partner at Bingham McCutchen, and head of the law firm’s telecoms practice, expects AT&T to ask the judge for an expedited trial period.
Within the next two or two and a half months the parties will collect evidence, identify witnesses and generally prepare for a litigation battle. But at the end of this “discovery” period, AT&T might be prepared to go back to the DOJ with an enhanced remedy offer, Lipman suggested.
However if the parties were unable to agree on a settlement based on an enhanced remedy offer, a full trial will follow.
A second lawyer, partner at a major New York based law firm and following the transaction agreed that settling the case was always an option. He referred to the recent example of the VeriFone/Hypercom deal, which involved two providers of electronic payment services.
This deal had been taken to the court based on antitrust concerns, but the DOJ withdrew the case in early August after an agreement on remedies was reached.
Lipman and the second lawyer both noted that remedies in the AT&T/T-Mobile case would need to be far reaching to get a settlement.
Lipman suggested AT&T would have to give up a significant amount of spectrum nationwide. Furthermore, the company would have to pass on a substantial number of customers to other players, as well as granting reduced access rates to competitors, allowing data roaming on the ATT network, and eliminating exclusivity for handsets.
The second lawyer cautioned however that it was not clear if the DOJ thought that the antitrust concerns could be remedied at all. He noted that the DOJ had described T-Mobile as a maverick with innovative products and pricing policies, meaning its role is seen as crucial for healthy competition in the market.
The DoJ filing
In its filing yesterday, the DoJ said that the acquisition would “substantially lessen competition” and, unless it was stopped, “customers of mobile wireless telecommunications services [in the US] 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”.
The DoJ concluded that AT&T and T-Mobile could not demonstrate “merger-specific, cognizable” efficiencies that were sufficient to reverse what it called the “anticompetitive effects” of the deal.
It highlighted that T-Mobile had been an aggressive competitor to other US telcos, particularly in terms of the price of services.
AT&T swiftly released a statement expressing surprise and disappointment at the action. The company’s senior executive VP and general counsel, Wayne Watts, said it had received “no indication” from the DoJ that this action was being considered.
Reaction from the FCC
Following the DoJ’s announcement, FCC Chairman Julius Genachowski made a statement that was unlikely to have cheered the spirits of AT&T or T-Mobile.
“Competition is an essential component of the FCC’s statutory public interest analysis, and although our process is not complete, the record before this agency also raises serious concerns about the impact of the proposed transaction on competition,” Genachowski said.
The FCC restarted the clock on its separate review of the AT&T/T-Mobile deal last week, after a delay while AT&T provided the regulator with new information.
Today is day 89 of the review process. The FCC is aiming for the process not to exceed 180 days.
Analyst reaction: What are the options now for AT&T and T-Mobile?
Analysts scrambled to model the potential repercussions of the deal on the US telecoms market.
Credit Suisse analyst Jonathan Chaplin referred to the rumoured talks between T-Mobile USA and mobile operator Sprint Nextel, before the deal with AT&T was announced in March.
Chaplin said that “we continue to believe that a combination with [Sprint] is in the best interests of T-Mobile” and added that such a deal would be unlikely to face the same opposition from regulators.
He did not comment on the likelihood of the DoJ succeeding in its suit, as Credit Suisse is one of Deutsche Telekom’s advisers on the deal.
The chief analyst at Ovum, Jan Dawson, suggested that AT&T should pursue a network-sharing deal with T-Mobile
“This would provide some of the same benefits without raising as many concerns on the part of the federal government, and would arguably have been a better strategy from the outset given the inherent risks involved in such a major acquisition,” Dawson said.
