Why Washington Wants to Bar the AT&T-T-Mobile Bid

On Monday, U.S. District Court Judge Ellen S. Huvelle will hear motions in the Justice Department's case to bar the $39 billion takeover of T-Mobile USA by AT&T.

The Aug. 31 filing was unexpected but seemed to show a new fervor by the Obama Administration to prevent mergers that could strangle competition.

Not surprisingly, the T-Mobile takeover is opposed by No. 3 carrier Sprint-Nextel, as well as CenturyLink and the new C Spire, formerly known as Celllular South. Verizon Communications, No. 2, doesn't like it, either.

Now that AT&T, the largest U.S. landline and wireless provider and Verizon have reported third-quarter results, it's not hard to see why the government is concerned that making AT&T bigger would not help competition. (Sprint is expected to report results Oct. 26).

Dallas-based AT&T reported its wireless subscriber base reached a record 100.7 million, or just under one-third of the total population. In the third quarter, it sold 4.8 million smartphones, with almost half being non-iPhone units.

AT&T was Apple's first iPhone operator in 2007. Meanwhile, AT&T reported free cash flow of $5.1 billion.

Now consider Verizon. The New York-based No. 2 reported 93.2 million wireless customers, of whom 98.7 million were retail customers. Verizon sold 5.6 million smartphones, including two million iPhones and 3.6 million Google Android phones.

Verizon's free cash flow was $8.3 billion.

T-Mobile, based in Bellevue, Wash., now doesn't sell or service iPhones, which may be a drawback, but it does have a major 4G network, which AT&T craves, especially for more robust service demand by iPhone and Android customers.

Sprint, based in Overland Park, Kan., which reports next week, last had 51.5 million subscribers, while T-Mobile, owned by Deutsche Telekom, had about 33.6 million in the second quarter, market researcher Strategy Analytics estimates.

So, assuming the AT&T purchase closes, the bigger AT&T would have roughly 140 million subscribers, Verizon would have 93.2 million and Sprint, which now sells iPhones, roughly 55 million.

The Justice Department's case against the deal is based on competitive analysis that is long accepted and well regarded showing such concentration tends to remove competition. Also, antitrust lawyers, including Bruce Schneider with Stroock, told IBTimes a so-called four-to-three merger is usually challengeable on just these grounds.

There are several smaller wireless providers, such as Metro PCS, C Spire and U.S. Cellular, but combined, their total base is a mere 22.6 million, hardly a challenge to a bigger AT&T.

Reports have said AT&T might try to sell pieces of T-Mobile to several or all of the smaller carriers to win Justice Department approval. Judge Huvelle has indicated she would rather settle the case than hold a trial, now scheduled for February.

But the numbers are compelling: making AT&T so big again in the era when wireless and portable platforms are the future clearly risks making the new AT&T as monopolistic as the old one, which broke up on Dec. 31, 1983.

AT&T shares closed at $29.13, up 13 cents Friday, while Verizon shares closed at $37.42, up 32 cents. Sprint closed at $2.77, up six cents. Verizon, up 4.5 percent this year, is the best perfoming stock of the three.