A federal Department of Justice lawsuit filed today to block AT&T‘s proposed $39 billion acquisition of T-Mobile USA Inc. could trigger a $3 billion breakup fee, according to AT&T.
“The stock purchase agreement contains certain termination rights for each of the (companies) and (T-Mobile parent) Deutsche Telekom,” AT&T said in a previously released statement. “In the event that the stock purchase agreement is terminated because of the failure to obtain regulatory approval, the company may become obligated to pay Deutsche Telekom $3 billion in cash,” among other penalties.
The lawsuit was filed in U.S. District Court for the District of Columbia, and alleges the 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 who rely on mobile wireless services in their everyday lives.”
Four nationwide providers — AT&T, T-Mobile, Sprint and Verizon Wireless — account for more than 90 percent of mobile wireless connections, according to the Justice Department. “The proposed acquisition would combine two of those four, eliminating from the market T-Mobile — a firm that historically has been a value provider, offering particularly aggressive pricing,” according to the announcement.
In a previous interview with NJBIZ, J. Michael Schweder, mid-Atlantic president for AT&T, said the company would allow T-Mobile customers to keep the lower-cost plans the provider currently offers its subscribers.
“We are surprised and disappointed by today’s action, particularly since we have met repeatedly with the Department of Justice, and there was no indication from the DOJ that this action was being contemplated,” said Wayne Watts, AT&T senior executive vice president and general counsel. “We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed. The DOJ has the burden of proving alleged anticompetitive effects, and we intend to vigorously contest this matter in court.”
But a Mountain Lakes-based telecommunications analyst praised the government’s action.
“The consumer will be (a loser) if this deal goes through,” said Robert Rosenberg, president of Insight Research Corp. “There are other, smaller providers that aim for smaller markets — but coverage quality suffers when there’s less competition.”
In New Jersey, the merge has several high-profile backers, including the state Chamber of Commerce, the New Jersey Business & Industry Association and the Chamber of Commerce of Southern New Jersey.