August 31, 2011 / 3:33 PM / 7 years ago

Instant view: U.S. government to block AT&T bid for T-Mobile

NEW YORK (Reuters) - The Obama administration on Wednesday filed to block AT&T Inc’s $39 billion acquisition of T-Mobile USA from Deutsche Telekom due to anti-competitive concerns.

The news sent AT&T shares down 4 percent and Deutsche Telekom shares fell more than 7 percent. Shares of rival Sprint Nextel Corp jumped 7 percent.

Here are some comments on the news:

STEVE CLEMENT, PACIFIC CREST ANALYST

“It’s surprising. Clearly AT&T didn’t expect this. AT&T put itself in a position where it would have to pay a hefty break-up fee to T-Mobile USA.”

“It changes things for them with respect to the spectrum flexibility they’d have. They’re going to have to be in the market to buy incremental spectrum.”

“It’s mixed for Sprint. On the one hand, they were potentially going to lose T-Mobile USA as a competitor at the low end of the market. Now it’s going to face a T-Mobile that’s in a better position prior to the merger proposal, with extra cash and spectrum and a new roaming agreement with AT&T.”

“It also puts T-Mobile USA back in play as a potential merger candidate for Sprint.”

ANDREW HOGLEY, ESPIRITO SANTO TELECOMS ANALYST

“The momentum had been building on the positive case. A lot of state governors, attorneys-general had been coming out in support of the case. AT&T had been lobbying on creating 5,000 more U.S. jobs, guaranteeing no more call center redundancies.

“We thought the weight of AT&T’s lobbying was having some success; this very much undermines that. It’s very uncertain where this leaves us at the moment. The stock price reaction is probably a little bit overdone today but it’s still clearly a negative development, given the commentary we’d seen so far.”

TIM DANIELS, TELECOMS ANALYST AT LONDON-BASED STOCKBROKER OLIVETREE SECURITIES

“I don’t think you can call the deal 100 percent dead yet but it is almost certain not to progress in its original form. If the FCC rules against it as well, I don’t see how AT&T can maintain any argument that the deal is in the public interest.”

RICHARD DINEEN, HSBC ANALYST

“The news clearly throws the deal into considerable doubt. The DOJ has said the door remains open for remedies, but if you’re talking about market concentration as the point of contention there’s only so much in terms of subscriber divestments you can achieve without undoing the economies of scale you were seeking in the first place.

“AT&T is going to be on the hook for break-up fee of $3 billion plus spectrum and a roaming deal, but AT&T will still be a formidable player with huge scale. It makes a big difference to Sprint, since the competitive efforts of the big guys would be diluted.

“It would also be a big deal for T-Mobile’s owner, Deutsche Telekom, which now has the problem it had before, with a subscale operation in the U.S. All those problems now come back.

The DOJ’s concerns imply that they don’t want less than four big national players. There had been speculation that Sprint and T-Mobile may get together, but it looks on this basis that even that would be objectionable.”

JAMES COLE, U.S. DEPUTY ATTORNEY GENERAL

“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.

“AT&T and T-Mobile currently compete head-to-head in 97 of the nation’s largest 100 cellular marketing areas. They also compete nationwide to attract business and government customers.

“Were the merger to proceed, there would only be three providers with 90 percent of the market, and competition among the remaining competitors on all dimensions-including price, quality, and innovation-would be diminished.”

WAYNE WATTS, AT&T GENERAL COUNSEL

“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.

“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 anti-competitive affects and we intend to vigorously contest this matter in court.”

JULIUS GENACHOWSKI, FEDERAL COMMUNICATIONS COMMISSION CHAIRMAN

“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.

HAROLD FELD, PUBLIC KNOWLEDGE LEGAL DIRECTOR

“Fighting this job-killing merger is the best Labor Day present anyone can give the American people. AT&T’s effort to recreate ‘Ma Cell’ by holding rural broadband hostage and threatening American jobs deserves nothing but scorn.

“The FCC should move as quickly as possible to follow the lead of the Department of Justice and reject the merger.”

ANDREW SCHWARTZMAN, MEDIA ACCESS PROJECT SENIOR VICE PRESIDENT AND POLICY DIRECTOR

“This is arguably the most anti-competitive move in recent American economic history. It is heartening that the Department of Justice has withstood withering political pressure from AT&T to do the right thing for the American public.”

JACK GOLD, J. GOLD ASSOCIATES PRINCIPAL

“AT&T swallowing T-Mobile will essentially result in the U.S. becoming a duopoly with AT&T and Verizon Wireless controlling the vast majority of the market. It will hurt Sprint, and certainly many of the smaller players.

“And since it’s astronomically expensive to start a mobile carrier these days, it’s unlikely that any new competitors will arise unless a big international funding group steps in — perhaps from China — which is unlikely to win approval politically.”

“So the bottom line for me is that even though AT&T certainly would benefit from the increased spectrum available from the T-Mobile acquisition, it may not be in the best interest of the consumer ultimately.”

“On the flip side of course, it may be impossible for T-Mobile to remain an independent player longer term, so an acquisition by AT&T might be in its best business interest. But if T-Mobile goes, it will put incredible pressure on Sprint to find a big brother as well.”

MARK JAMES, LIBERUM CAPITAL ANALYST, VIA EMAIL

“Understandably this is being taken negatively, but can it really come as a surprise? We retain the view...that regulatory approval will be a long, drawn out process given market shares of the combo will reach 41 percent. Ultimately, post concessions, we still expect the deal to be cleared — eventually.

“Those more bullish than us on DT can draw SOME comfort from the deal break clause. AT&T is on the hook for US$3 billion should the deal falter.

“We remain Sellers of Deutsche Telekom where domestic operations are firmly in reverse. Post deal announcement our concerns were that all the good news was arguably in the price, leaving investors to fret over deal risk and contend with the poor domestic trends.”

REBECCA ARBOGAST, STIFEL NICOLAUS ANALYST IN RESEARCH NOTE

“Based on our quick review of the complaint, we believe the filing is serious and not meant as merely a negotiating strategy to bring AT&T to the table to negotiate conditions and concessions.”

“We expect that AT&T will fight, rather than merely step down as is more common when DOJ moves to block mergers.”

“We would be astonished if the FCC were to approve the deal while litigation is pending before the District Court.”

Reporting by Sinead Carew in New York, Kate Holton, Georgina Prodhan and Victoria Howley in London, Karey Wutkowski and Jasmin Melvin in Washington, Bill Rigby in Seattle and Toni Clarke in Boston; compiled by Tiffany Wu

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