The lawsuit filed by the Department of Justice (DoJ) last week to block AT&T’s acquisition of T-Mobile caught the corporate sector by surprise, but US antitrust attorneys have warned against presuming the start of tougher merger clearance procedures.
They do note that the case against the merger of the US’s second and fourth biggest wireless telecom providers does touch on new areas of focus in the US’s horizontal merger guidelines released last year.
The claim, filed last Wednesday with a federal district court, is considered a drastic measure for two procedural reasons: it was filed just five months after the DoJ would have commenced talks with AT&T over the deal, and before the Federal Communications Commission (FCC) – which must approve the deal on public interest grounds – has finished its review.
When the DoJ has previously sued (or threatened to sue) to block a merger, it has done so after a longer period of discussions, and it typically collaborates with the FCC.
Last week’s swift action coincides with personnel changes at the top of the DoJ’s antitrust division. In August former deputy Sharis Pozen was appointed to acting chief of the division after Christine Varney departed to join Cravath Swaine & Moore.
One antitrust partner told IFLR that he did suspect Pozen would take a slightly more aggressive approach than her predecessor, but admitted that the AT&T/T-Mobile acquisition agreement would have been filed for antitrust clearance shortly after it was signed in March, meaning the DoJ’s investigation started under Varney’s watch.
“I think it’s a subtle signal that the department will go to court if it needs to, but it’s too early in the Pozen leadership to say it signals the start of a new approach,” he said.
Antitrust lawyers that IFLR spoke with all dismissed suggestions the DoJ complaint was designed to gain leverage against AT&T to help the department achieve its ultimate goal of gaining concessions from the acquirer to improve competition in the sector.
“Pundits in the antitrust community say this is what they are looking for, but the FCC has plentiful leverage. I’m not sure what the pundits are getting at,” one said.
Another suggested the DoJ might be trying to “draw a line in the sand” on technology deals after drawing criticism recently for not being tough enough in the sector, including on the NBC/Comcast deal in January.
But the consensus is that most of these prior tech deals raised vertical rather than more straightforward horizontal issues alleged in the AT&T/T-Mobile complaint.
A disruptive maverick
Procedural issues aside, the government’s claim against AT&T brings to the fore the DoJ and Federal Trade Commission’s updated merger review guidelines (Guidelines).
“A number of themes emphasised in the new guidelines are on display in the complaint that the justice department filed,” said Stephen Smith, co-chair of Morrison & Foerster's global antitrust & competition group.
One is the DoJ’s description of T-Mobile as a disruptive competitor, or a maverick. The target warrants the label because of its innovative pricing plans which have placed increasing competitive pressure on its bigger rivals.
The Guidelines, attorneys said, place a greater emphasis on direct measures of such competitive effects.
Another is the Guidelines’ focus on ‘targeted customers’. In its complaint the DoJ defines this to capture the national market as well as the country’s 100 local markets.
“It was easy for AT&T to prepare for the local market analysis based on precedent, but the interesting question is to what extent it credited a national market argument,” said one New York-based corporate partner.
Unless AT&T obtains a stay of proceedings, pursuant to which it can try for an out-of-court settlement with the DoJ, FCC, T-Mobile and its owner Deutsche Telekom, the case will proceed through federal court as a merger trial on the merits.
AT&T and the DoJ are scheduled to appear in court on September 21 to discuss settlement prospects, and before then must file a case management timetable.
If the case does proceed to trial, the government can take little comfort from its past performance in similar cases.
“The trend we’ve seen is that as merger analysis has become more sophisticated and fact-intensive, the government has had more difficulty winning cases,” said the antitrust partner.
Sprint: fuel to the fire
Sprint’s filing of a separate claim against AT&T on Wednesday caught market observers by surprise.
“This is very unusual as unlike the situation in Europe, traditionally competitors find it very hard to get standing [in US antitrust issues],” said one antitrust partner.
But the consensus is that the claim filed by Sprint, the country’s third largest wireless telecoms provider, sets out very effectively how it would be handicapped by the merger, making it difficult for AT&T to challenge its standing.
In essence, it alleges that an AT&T/T-Mobile merger would make Sprint an ineffective competitor, which “adds fuel to the fire here,” said the corporate partner.
Sprint’s claim has been filed in the same court as the DoJ’s, making it possible the actions will be consolidated.
Cleary Gottlieb Steen & Hamilton is representing Deutsche Telekom, Arnold & Porter is acting for AT&T, and Skadden Arps Slate Meagher & Flom for Sprint. All three firms declined to comment on the claims.