WASHINGTON — President Barack Obama vowed before he was elected to beef up the country’s antitrust enforcement. By suing to block AT&T’s $39 billion merger with T-Mobile USA, the Justice Department on Wednesday made its highest-profile effort yet to keep that promise.
The confrontation comes after some antitrust watchers have knocked the Justice Department under Obama as being too timid in its approach. The most frequent criticism: They don’t go to court enough.
With AT&T vowing to fight the Justice Department’s challenge, it looks as if antitrust enforcers are heading for a rare courtroom showdown.
The last time a sizable merger was challenged in court by Justice was in 2004, under President George W. Bush, when antitrust enforcers tried to block an acquisition by Oracle. The world’s biggest business-software firm was trying to buy PeopleSoft, the third-biggest player in the market. The judge rejected the government’s arguments.
“They don’t go to court very often,” said Albert Foer, president of the American Antitrust Institute. “Ever since the Oracle-PeopleSoft merger, where they lost in district court, they’ve been somewhat gun-shy.”
The AT&T suit, filed in U.S. District Court in Washington, aims to block AT&T’s proposed $39 billion acquisition of T-Mobile, a deal that would create the largest carrier in the country and reshape the industry.
“The department filed its lawsuit because we believe the combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for their mobile wireless services,” said James M. Cole, deputy attorney general.
Competition issues
The Justice Department’s complaint said T-Mobile “places important competitive pressure on its three larger rivals, particularly in terms of pricing, a critically important aspect of competition.”
Verizon is the No. 1 carrier, followed by AT&T and Sprint Nextel.
The Justice Department has gone to court a few times against smaller companies. It is in court now after suing in May to block a deal between H&R Block and TaxAct, a do-it-yourself tax-prep software company. But in the three most controversial deals to cross the Antitrust Division’s desk since 2008, officials have given mergers the green light after adding some restrictions.
Those three deals were Ticketmaster’s merger with Live Nation, Google’s purchase of travel software firm ITA and Comcast’s merger with NBC. In each case, federal officials concluded that the mergers would hurt competition if allowed to go through as proposed. So they brokered agreements with restrictions, saying the curbs resolved their worries about harm to consumers and competitors.
But the deal between AT&T and T-Mobile is different from those cases in one major respect: They compete head to head in the mobile-phone business. The other deals involved companies that weren’t direct rivals. For instance, Comcast is a cable company, and NBC makes TV shows and movies.
The distinction will be key to the government’s case, antitrust watchers said, because judges have generally been more willing to block deals between companies that compete in the same market.
“I think it’s an easier case,” Foer said.
Still, the Antitrust Division faces months of work on top of the time spent investigating the deal. And it has seen some turnover in leadership recently with its former chief, Christine Varney, departing for a job at Cravath, Swaine & Moore. The Obama administration has yet to nominate a replacement.
Varney stirred up the antitrust world early in her tenure by promising, as did Obama, to toughen enforcement. Some thought she would launch an antitrust case against Google on the level of the Clinton administration’s battle against Microsoft in the 1990s. Instead, the Federal Trade Commission, which also handles antitrust cases, has taken on the task of investigating whether Google has broken laws against anticompetitive behavior.
Economic impact
Foer said the suit shows that antitrust enforcement can still be “alive” when the economy is growing slowly and there are pressures to go easy on big business. Republicans, for instance, have accused the White House of obstructing private-sector growth with excessive regulations.
Deputy Attorney General James Cole seemed to acknowledge those concerns Wednesday when he argued that blocking the deal would “protect jobs” because mergers tend to result in layoffs.
There is still time, however, for the deal to go through with some modifications. Justice officials said Wednesday that “the door was open” for AT&T to sit at the table and negotiate.
The New York Times contributed to this report.
Recent cases
How recent Justice Department efforts to block acquisitions turned out:
H&R Block/2SS (TaxAct): In May, Justice sued H&R Block, saying the merger would stifle competition and raise prices. The case is being litigated in U.S. District Court in Washington.
Nasdaq OMX/NYSE Euro next: The $11.3 billion bid was withdrawn May 16 after Justice threatened suit.
Blue Cross Blue Shield of Michigan/Physicians Health Plan of Mid-Michigan: The purchase was abandoned in 2010 after Justice told the companies that it would file an antitrust lawsuit.
Oracle/PeopleSoft: Justice sued in 2004 to stop the $8.4 billion purchase, which went through after a federal judge rejected Justice’s arguments that the deal would give Oracle power to raise software prices and harm competition.
SunGard Data Systems/ Comdisco: A U.S. appeals court rebuffed a request by Justice to halt the $825 million transaction. U.S. District Judge Ellen Segal Huvelle, who is presiding over the AT&T case, ruled Justice failed to show that the combined company’s relevant market would be limited to services now offered by Comdisco, SunGard and IBM. Bloomberg News
