AT&T Fires Back At DOJ To Protect T-Mobile Merger

AT&T's proposed $39 billion merger with T-Mobile

In a 27-page response, AT&T said that the merger would generate market efficiencies that would benefit consumers and in turn lead to more, not less, competition, as the DOJ claimed in the original suit lodged last week.

“The combination of T-Mobile and AT&T is good for consumers. Integrating the two networks will free up spectrum and create substantial new capacity to meet the spectacular growth in demand resulting from an increasingly on-line world,” AT&T said in its countersuit. "The Department of Justice's complaint fails to come to grips with the significant efficiencies this transaction will generate."

The DOJ, in its suit brought last week, sought to block the merger on anti-competitive grounds. The DOJ said that T-Mobile has consistently been an innovator, bringing inventive products -- like the first android OS handset -- and especially lower prices to the mobile marketplace. T-Mobile competes with AT&T in 97 out of 100 U.S. markets, the DOJ said in its claim.

But AT&T countered that T-Mobile is a floundering company, “stuck in the middle” between the larger mobile carriers and is not a significant innovator or competitor; it has been losing subscribers and German parent company Deutsche Telekom has said it will not continue to invest in T-Mobile, its U.S. arm of operations, AT&T said.

AT&T cited smaller mobile carriers -- like upstarts Metro PCS and Leap/Cricket, as well as regional players US Cellular and Cellular South -- as evidence that vibrant competition in the mobile marketplace will continue, even without an independent T-Mobile.

"The (Justice) Department does not and cannot explain how, in the face of all these aggressive rivals, the combined AT&T/T-Mobile will have any ability or incentive to restrict output, raise prices, or slow innovation.”

Critics note, however, that the smaller carriers mentioned in the AT&T complaint don’t have the national coverage infrastructure that most mobile customers want -- as do the big four GSM providers AT&T, Verizon, T-Mobile, and Sprint.

If the merger goes forward, AT&T will overtake Verizon as the leading U.S. mobile provider. But should the deal fail for regulatory reasons, AT&T will have to pay T-Mobile approximately $6 billion in breakup fees, roaming and spectrum rights. AT&T is therefore pulling out all the stops to save the deal, vowing to "vigorously defend" the merger at trial, while also attempting to negotiate a settlement with the DOJ to ensure it goes forward.

Sprint Nextel added its voice to the legal fray last week, filing a suit claiming the merger would harm its own and other carrier’s ability to compete.

The DOJ, meanwhile, reacted to AT&T countersuit, promising a formal response in court.

"We continue to believe this transaction as currently proposed is anti-competitive and harmful to consumers," DOJ Spokesperson Gina Talamona said. "We will respond further in our court filing."