The Justice Department's antitrust suit to block AT&T's proposed $39 billion merger with T-Mobile has already sunk AT&T stock 4 percent and caused competitor Sprint's to rise 9 percent. And while a slew of consumer groups, technology pundits and even the FCC are cheering the decision, it's not clear that the DoJ will succeed in blocking the acquisition. As Andrew Gavil, a law professor at Howard University, told Bloomberg, “Given the size of the cancellation fee that was negotiated into his agreement, AT&T has the incentive to fight. The fact that the Justice Department is challenging the deal doesn’t mean they won’t negotiate a resolution at some point.” Still, others say the merger is toast. Here's why:
It's about the law, not politics, writes Martin Peers at The Wall Street Journal:
On the most basic level, it was evident before the filing, the combination exceeds concentration of market share levels—as defined by the Herfindahl-Hirschman index—that the federal government generally finds acceptable. Divestitures could resolve the concentration risk, of course. But AT&T will find it harder to get around the reality that a merger would reduce the number of national wireless firms from four to three—in the process eliminating a low-priced competitor.
The Justice Department's primary test "is whether a merger causes prices to be higher than they otherwise would be," Joe Simons, co-head of the antitrust group at Paul, Weiss, Rifkind, Wharton & Garrison LLP, said before the filing. And that doesn't have to mean prices going up, he noted. Even if prices are falling, and continue to fall, the question is whether they would have fallen materially more absent the merger.
My money's on this merger not happening, writes Felix Salmon at Reuters:
AT&T hasn’t officially given up, but I can’t see it winning this particular fight with the law... AT&T and T-Mobile have both put enormous amounts of management time and shareholders’ money into putting this merger together, all of which will now be for naught. Rather than fight the inevitable, they should go back to fighting each other where it matters: in the marketplace.
The DOJ will dig in its heels, AT&T has incentive to give up, Roger Noll, a Stanford University economics professor, tells The Wall Street Journal. "If the DOJ believes the deal is anti-competitive, they are going to block it outright and not leave any room for negotiation. For AT&T, this deal is about the spectrum and if they have to give up a bunch of it in big cities, that pretty much defeats the purpose of the merger."