AT&T deal draws high-profile suit by Justice Department

August 31, 2011

President Obama vowed before he was elected to beef up the country’s antitrust enforcement. By suing to block AT&T’s $39 billion merger with T-Mobile, the Justice Department is making its highest-profile effort yet to keep that promise.

The confrontation comes after some antitrust watchers have knocked the Justice Department under Obama as being too timid in its approach. The most frequent criticism: They don’t go to court enough.

With AT&T vowing to fight Justice’s challenge, it looks like antitrust enforcers are heading for a rare courtroom showdown.

The last time a sizable merger was challenged by Justice in court was in 2004, under President George W. Bush, when antitrust enforcers tried to block an acquisition by Oracle. The world’s biggest business-software firm was trying to buy PeopleSoft, the third-biggest player in the market. The judge rejected the government’s arguments.

“They don’t go to court very often,” said Albert Foer, president of the American Antitrust Institute. “Ever since the Oracle-PeopleSoft merger, where they lost in district court, they’ve been somewhat gun-shy.”

The Justice Department has gone to court a few times against smaller companies. It is in court now after suing in May to block a deal between H&R Block and TaxAct, a do-it-yourself tax-prep software company. But in the three most controversial deals to cross the Antitrust Division’s desk since 2008, officials have given mergers the greenlight after adding some restrictions.

Those three deals were Ticketmaster’s merger with Live Nation, Google’s purchase of travel software firm ITA and Comcast’s merger with NBC. In each case, federal officials concluded that the mergers would hurt competition if allowed to go through as proposed. So they brokered agreements placing restrictions on the companies, saying the curbs resolved their worries about harm to consumers and competitors.

But the deal between AT&T and T-Mobile is different from those cases in one major respect: The two firms compete head-to-head in the mobile phone business. The other deals involved companies buying companies that weren’t direct rivals. For instance, Comcast is a cable company, and NBC makes TV shows and movies.

The distinction will be key to the government’s case, antitrust watchers said, because judges have generally been more willing to block deals between companies that compete in the same market, as AT&T and T-Mobile do. “I think it’s an easier case,” Foer said.

Still, the Antitrust Division faces months of work on top of the time spent investigating the deal. And it has seen some turnover in leadership recently with its former chief, Christine Varney, departing for a job at Cravath, Swaine & Moore. The Obama administration has yet to nominate a replacement.

Varney stirred up the antitrust world early in her tenure by promising, as did Obama, to toughen enforcement. Some thought she would launch an antitrust case against Google on the level of the Clinton administration's battle against Microsoft in the 1990s. Instead, the Federal Trade Commission, which also handles antitrust cases, has taken on the task of investigating whether Google has broken laws against anti-competitive behavior.

Foer said the suit shows that antitrust enforcement can still be “alive” when the economy is growing slowly and there are pressures to go easy on big business. Republicans, for instance, have criticized the White House for obstructing private-sector growth with excessive regulations.

Deputy Attorney General James M. Cole seemed to acknowledge those concerns Wednesday when he argued that blocking the deal would “protect jobs” because mergers tend to result in layoffs.

There is still time, however, for the deal to go through with some modifications. Justice officials said Wednesday that “the door was open” for AT&T to sit at the table and negotiate.

Jia Lynn Yang is a staff writer at The Washington Post who covers policy and business. Before joining the Post, she worked at Fortune magazine.
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