DoJ Acts In the Best Interest of Cellphone Users?

On Wednesday morning, the Department of Justice sued to block the merger between AT&T (NYSE: T) and T-Mobile.

Now, it will take lengthy legal proceedings to bring the two major mobile providers together into one entity.

The DoJ argued that the merger would significantly lessen competition in the sector. AT&T, Verizon Wireless (NYSE: VZ), Sprint (NYSE: S), and T-Mobile currently dominate the wireless sector, while other relatively minor players such as MetroPCS (NYSE: PCS) also factor into the mix.

AT&T is currently the largest company by market cap, although it is second to Verizon Wireless in terms of mobile subscribers. T-Mobile has the 4th largest subscriber base. A merger of the two would create a company that controlled roughly 40% of the market.

The deal might also tempt Verizon to purchase struggling rival Sprint, a possibility that has been frequently speculated on in the past.

In that scenario, the wireless phone market could come to be dominated by just two companies, perhaps to the detriment of wireless consumers everywhere.

The suit may have caught AT&T’s management off-guard.

In its proposed merger deal, AT&T agreed to pay T-Mobile $7 billion should the deal somehow fall through. As AT&T has roughly 6 billion shares outstanding, that amounts to a loss per share of over $1.

Given that a failed merger deal would amount to such a loss, AT&T’s management may have expected the deal to receive regulatory approval.

“We are surprised…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,” the company said in a statement.

Further, AT&T vowed to fight the suit.

As if to telegraph a possible concession, AT&T stated that, should the deal be approved, the company would bring back 5,000 call-center jobs that had been outsourced overseas.

That pledge might make the deal more palatable to the current administration, which may be desperate to increase employment in a floundering job environment.

Sprint benefited from the news, as the company’s stock rallied nearly 10% following the announcement of the DoJ’s suit. Investors may have believed that a combined AT&T/T-Mobile may push Sprint out of the sector.

Alternatively, the possibility exists that Sprint could merge with T-Mobile. That deal might be more likely to pass regulatory approval, as Sprint is a much smaller company than AT&T.

Regardless, the upcoming legal battle is sure to create history in the business world.

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