The Justice Department’s lawsuit challenging AT&T Inc.'s $39-billion takeover of T-Mobile USA Inc. was based on worries that consumers would be hit with higher prices, worse wireless service and dwindling mobile phone options.
But administration officials acknowledged that another concern colored the decision: jobs.
Combining AT&T and T-Mobile could lead to the loss of as many as 20,000 jobs as redundant positions are eliminated, putting a drag on unemployment in the wireless sector for years.
That’s not exactly the kind of news President Obama wants as he rolls out a new initiative next week to boost employment, including an address to a joint session of Congress. The sour state of the economy stands as the single biggest obstacle to Obama’s reelection.
“The view that this administration has is that through innovation and through competition, we create jobs,” said Deputy Atty. Gen. James M. Cole at a press conference Wednesday announcing the lawsuit to block the merger. “We see this as a move that will help protect jobs in the economy, not a move that’s going to in any way reduce them.”
Beyond the short-term layoffs, critics say the merger could lead to a less competitive U.S. wireless industry, where the remaining companies spend less to build and improve their networks, sapping the demand for thousands of technicians and engineers.
In a presentation on the merger in March, AT&T said that it expected to save more than $10 billion in “avoided purchases and investments” related to its wireless network, and that it would cut another $10 billion out of its budget for call centers and customer billing — both major employment areas for telecom companies.
“The job losses would be felt immediately” as AT&T eliminated redundant positions after a merger, said Derek Turner of Free Press, a media advocacy organization. But as investment slowed in the construction and maintenance of cellular networks, he said, the demand for labor in the wireless industry would shrink.
“In the long run you’ll see many fewer jobs created in this active sector of our economy,” Turner said.
Perhaps anticipating these concerns, AT&T announced early Wednesday that if the deal went through, it would bring 5,000 call center jobs to the U.S. from other countries.
AT&T also reiterated that $8 billion in future investments that would be “part of the T-Mobile merger” would create 96,000 jobs, citing a study by the Economic Policy Institute, a Washington think tank. The study was commissioned by the Communications Workers of America, which represents AT&T workers and has been a vocal supporter of the merger. The merger would enable the union to expand its membership if it absorbed some of the 42,000 employees at T-Mobile, which is not unionized.
Union officials denounced the lawsuit, saying “the DOJ’s action would put good jobs and workers’ rights at the bottom of the government’s priorities.”
Business groups joined the chorus criticizing the government, which they said was needlessly interfering in a vigorous market.
“The Department of Justice’s lawsuit amounts to a subversion of the evolution of free enterprise and economic progress,” said Ryan Radia, associate director of technology studies at the Competitive Enterprise Institute, a conservative think tank. “The suit is also further evidence of this administration’s antipathy toward the job-creating sector.”
But consumer advocates scoffed at those claims.
“When AT&T talks to Wall Street, they talk about synergies, which means shutting down retail outlets and cutting back-office jobs,” said Andrew Jay Schwartzman, policy director of the Media Access Project. He said the proposed merger was “arguably the most anti-competitive move in recent American economic history.”
“Fighting the job-killing merger is the best Labor Day present anyone can give the American people,” said Harold Feld, legal director of advocacy group Public Knowledge. “AT&T’s effort to recreate ‘Ma Cell’ by holding rural broadband hostage and threatening American jobs deserves nothing but scorn.”
The antitrust lawsuit filed Wednesday would prevent AT&T, which has the second-largest number of wireless customers in the country, from acquiring T-Mobile, the fourth-largest wireless carrier. The deal would displace Verizon Wireless as the largest wireless carrier in the U.S., and according to the Justice Department, would lead to a wireless industry that was less motivated to provide high-quality, affordable service and to continue the rapid pace of wireless innovation that consumers have seen over the last decade.
Justice Department officials said the move to block the deal marked the Obama administration’s biggest and most significant antitrust action. They said the lawsuit was driven by the belief that losing T-Mobile — known for its more-affordable phones and service plans — would result in higher prices for tens of millions of cellphone users.
T-Mobile “was the one company that was aggressively offering lower-price plans. They were the competitive juice driving that market,” said a Justice Department lawyer who worked on the case. “That is extremely valuable from a competitive point of view.”
The American Antitrust Institute, a Washington research organization, last month urged the Justice Department to block the merger because consumers would pay the price if two big players — AT&T and Verizon Wireless — dominated the market. It concluded that after a merger, the two companies would have 75% of wireless subscribers and nearly 80% of revenue.
“This was a pretty easy case for DOJ. There is a good chance this kind of merger would have been blocked by a Republican administration as well,” said Richard Brunell, an author of the American Antitrust Institute’s analysis.
A breakup could be expensive for AT&T, which would have to pay T-Mobile parent Deutsche Telekom more than $3 billion if the deal falls through.
The fate of the merger was clouded further when Julius Genachowski, chairman of the Federal Communications Commission, said Wednesday that his agency also had “serious concerns” about how the proposed buyout would affect the wireless market. The FCC has significant sway in preventing mergers it deems anti-competitive.
But the case is not yet closed. When they get to court, Justice Department lawyers will have to convince a judge that the merger would hurt competition and harm consumers. And for its part, AT&T will argue that a merger would make for a stronger company that would serve consumers better. The case was assigned to U.S. District Judge Ellen Huvelle, an appointee of former President Clinton.
“We are surprised and disappointed by today’s action,” Wayne Watts, AT&T’s senior executive vice president and general counsel, said in a statement. “The DOJ has the burden of proving alleged anti-competitive affects and we intend to vigorously contest this matter in court.”
Staff writer Marc Lifsher contributed to this report.