Court battle looms between U.S. and AT&T, T-Mobile

NEW YORK/WASHINGTON Thu Sep 1, 2011 4:52pm EDT

AT&T mobile phones are seen for sale alongside T-Mobile phones at a RadioShack electronics store in Los Angeles August 31, 2011. REUTERS/Danny Moloshok

AT&T mobile phones are seen for sale alongside T-Mobile phones at a RadioShack electronics store in Los Angeles August 31, 2011.

Credit: Reuters/Danny Moloshok

NEW YORK/WASHINGTON (Reuters) - The Justice Department made a bold move when it sued to block AT&T Inc's $39 billion acquisition of T-Mobile. Now comes the hard part: going to court.

The government is asking a federal judge in Washington, D.C., to stop the deal, and will have to prove that it would mean higher prices and less competition.

"This will be the Obama administration's line in the sand. This will be their signature antitrust event," said University of Baltimore law school professor Robert Lande.

AT&T has said it will fight the case, and its general counsel said it plans to seek an expedited hearing from the judge. Even so, experts say, the company could decide that it is not worth the expense and uncertainty to go to trial.

An AT&T spokeswoman declined to comment.

Two big communications deals, MCI's proposed takeover of Sprint in 1999 and EchoStar Communications Corp's deal to buy Hughes Electronic Corp's DirecTV in 2001 fell apart after the Justice Department challenged the deals.

"A preliminary question is whether AT&T will go to court. It's certainly not uncommon for companies to look at this and decide that the game isn't worth the gamble," said David Smutny, an antitrust lawyer with Orrick, Herrington & Sutcliffe.

The case was assigned to U.S. District Judge Ellen Segal Huvelle, who also oversaw the EchoStar-Hughes antitrust court challenge. Huvelle was appointed to the bench in 1999 by then President Bill Clinton.

In pre-trial proceedings in that case, Huvelle had harsh words for the way both companies responded to regulators' information requests, calling them "sluggish."

LENGTHY AND COMPLICATED

Any trial in the AT&T case would be lengthy and complicated, with experts predicting that both sides would put on a parade of witnesses including consumers, economists, and possibly competitors or state regulators.

In its complaint, the Justice Department argued that AT&T has overwhelming power in the national market -- it is one of four major carriers -- and that the market for mobile telecommunications would be highly concentrated in 96 of 100 U.S. cell phone market areas.

AT&T is likely to argue that the deal would create efficiencies in terms of price, quality and innovation -- and maybe even jobs, said Lande, the Baltimore professor.

"Very few efficiency defenses work," said Lande, who praised the Justice Department for bringing the action. "They make promises that these efficiencies could happen, but showing that in court is very difficult."

While most antitrust attorneys declined to say how they thought the case would be decided, Howard University law professor Andy Gavil said he thought the judge would block the deal. "Having read the complaint, I don't see a basis for a negotiated settlement," said Gavil, who testified to Congress on the deal.

Two other veteran Washington antitrust attorneys, who declined to be identified because of potential conflicts involving their law firms and companies in the case, told Reuters they think the deal will be stopped, either because the court blocks it or because AT&T drops its bid.

If the case goes to trial, there may be no quick end. The losing side is likely to appeal.

"You could have a situation here where the combined litigation and regulatory process could extend for several months or years," said Maury Mechanick, a telecommunications attorney at law firm White & Case.

"From a business practicality perspective, is that a delay that AT&T and T-Mobile can tolerate?" said Mechanick. "That's ultimately a judgment that they will have to make."

The case is USA v. AT&T Inc et al, U.S. District Court for the District of Columbia, No. 11-cv-1560.

For the DOJ: Sharis Pozen, Joseph Wayland, Gene Kimmelman, Patricia Brink, Laury Bobbish, Claude Scott and Lawrence Frankel.

For Defendants: Not immediately available.

(Reporting by Carlyn Kolker and Diane Bartz)

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Comments (9)
Brian35 wrote:
I’m actually happy with this decision. If this deal were to go through, it would only mean Big Business Big Government and the consumer only stands to lose with higher prices and less competition. Interesting poll I participated in…jabbermap.com/?p=664

Sep 01, 2011 9:38am EDT  --  Report as abuse
BiteRight wrote:
The anti-trust laws enacted as early as in 1920s expressly disallowed acquisitions that resulted in a market giant in any field or industry. This proposed merger clearly falls into monopolistic scrutiny.

Sep 01, 2011 10:17am EDT  --  Report as abuse
stambo2001 wrote:
Funny how people will rally against governmental controls one day and yet support market interventions such as this another day. People are actually applauding this affront to the concept of free and unfettered market place?! Why do people will expect legislated ‘fairness’ in terms of ‘competition’ yet do not expect the courts to enforce salary caps and compensation bonus caps then? Do not these examples also lead to increased prices? Where is the court mandated ‘fairness’ in these examples? Hypocritical, failed experiment in capitalism.

Sep 01, 2011 10:18am EDT  --  Report as abuse
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