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The Department of Justice's lawsuit to block AT&T Inc.'s proposed $39 billion acquisition of T-Mobile USA Inc. indicates the most aggressive antitrust stance yet by the Obama administration, a move that could reshape the president's future approach to corporate mergers.
The DOJ took the same tack in May when it sued to prevent H&R Block from acquiring 2SS Holdings, the developer of TaxAct, for $287.5 million in cash. The matter is now heading to trial. And that same month, Nasdaq withdrew its $11 billion bid for rival NYSE Euronext, the parent company of the Big Board, after the government threatened legal action.
The Obama administration has faced sharp criticism for not moving more forcefully to block big mergers and acquisitions. In November 2009, the DOJ cleared Oracle's acquisition of Sun Microsystems as the European Commission, the Brussels-based executive arm of the European Union, raised roadblocks over harms to the database software market. Several months later, the DOJ approved the merger of Ticketmaster Entertainment and Live Nation, creating a behemoth in the live entertainment business.
During his 2008 presidential campaign, Obama vowed to “reinvigorate antitrust enforcement.” In particular, he said his administration would “step up review of merger activity and take effective action to stop or restructure those mergers that are likely to harm consumer welfare.”
The Justice Department has now taken such an action against AT&T, arguing that company's takeover of T-Mobile would “substantially lessen competition” in the wireless market in violation of Section 7 of the Clayton Act, leading to higher prices and poorer service quality for consumers.
“The DOJ was absolutely right to bring the action,” Joseph Bauer, a University of Notre Dame law professor and antitrust expert, told BNA. “If you take the FTC and DOJ Horizontal Guidelines at all seriously, the HHIs are just off the chart.”
The HHI—Herfindahl-Hirschman Index—is calculated by summing the squared market shares of all firms in any given market. A post-AT&T-Mobile merger HHI would exceed 2,500. Such markets are considered “highly concentrated.”
One of the largest deals since the 2008 financial crisis, the proposed merger of AT&T and T-Mobile would combine the second- and fourth-largest wireless carriers in the United States, and supplant Verizon Wireless as the No. 1 carrier in the country.
AT&T and T-Mobile would together serve a combined 130 million customers nationwide, compared to Verizon's 97 million. As the nation's new No. 1 and No. 2 providers, AT&T and Verizon would control 76.2 percent of the market for post-paid wireless voice and data communications services. Even after adding net subscribers this year, Sprint Nextel Corp.—currently the No. 3 provider—ended 2010 with just 50 million subscribers.
Several antitrust experts surveyed by BNA find the DOJ's suit curious when viewed in the context of recent decisions not to challenge mergers and acquisitions.
To Bauer, there have been several notable deals that the DOJ and Federal Trade Commission could have challenged, but chose not to: Delta Air Lines' acquisition of Northwest Airlines, which closed in December 2009; United Airlines' acquisition of Continental Airlines, which closed October 2010; and Southwest Airlines' acquisition of AirTran Airways, which closed in May.
The DOJ's lawsuit also marks the first attempt to block a major telecommunications merger in more than a decade. The last came in 2000 under President Clinton, when the antitrust division blocked the proposed $129 billion merger between MCI WorldCom and Sprint, at the time the largest corporate merger in history. The deal would have combined the No. 2 and No. 3 long-distance companies with one of the top five national wireless phone companies and given the merged company unprecedented control over internet backbone traffic.
“You never really know how to judge an administration's merger enforcement program,” noted Daniel Wall, a partner in Latham & Watkins' San Francisco Office, who represented Oracle in its 2004 court battle to acquire PeopleSoft. “They don't all get served up the same number of deals, or the same number of ‘problematic deals.' It was noticeable during the Bush administration that merger enforcement was way down. A deal like a Whirlpool-Maytag comes along and it doesn't get challenged.”
Wall describes merger enforcement under the Obama administration as “mixed.”
“There have been situations in which I would have expected an aggressive administration to bring a case and they chose not to,” he said. “And there have been situations where they've been plenty aggressive. They just haven't had to go to court to get a lot of what they've gotten.”
“A lot of it has been achieved through consent decrees, like with the Live Nation-Ticketmaster merger,” he added.
The DOJ, in filing suit, took action well before the FCC was poised to—more than 80 days. The FCC had just restarted its 180-day “shot clock” for reviewing the AT&T-T-Mobile merger; Sept. 1 marked Day 89 of the 180. AT&T needs approval from both agencies.
“They didn't need to file this at this time,” said Wall. “You do wonder whether you're now dealing with an agency that might pull the trigger a lot earlier than you would think.”
Susan Crawford, a professor at Cardozo Law School in New York and a former special assistant to Obama for science, technology, and innovation policy, suggested in a blog post that even without the merger of AT&T and T-Mobile, the market is already highly concentrated and should have long ago raised antitrust red flags.
“The suggested merger shed light on the fact that we are heading towards—and may already have—a duopoly in the market for wireless access, with a yawning, insurmountable gap between the two big wireless carriers and everyone else,” she wrote. “Even without the merger, there are insufficient protections in place for innovation in connection with these wireless networks. The existing unregulated duopoly will have ample incentive and ability to keep profit margins as high as possible by discriminating against uses and services these companies believe are undermining their business plans.”
By Paul Barbagallo
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