The US government believes that the merger between AT&T and T-Mobile USA will dramatically alter the sectors competitiveness, with the outcome being that they are blocking the 39 billion dollar deal.
It was a daring move worth 39 billion dollars, placing the merger of carriers AT&T and T-Mobile USA towards the upper end of telephone deals – with such a merger creating the largest carrier in the United States while providing AT&T with T-Mobile USA’s frequency spectrum to better fight Verizon Wireless, currently the leader in the US market.
Facing such heavy competition, the big loser of such a merger would be Sprint Nextel, the third carrier in the United States, who is already struggling behind AT&T and Verizon. Such a merger would isolate them even more, with it posing a serious threat of turning the market into a duopoly.
From the beginning, such a situation gave investigators great concern while investors held their breath without having much hope (although they didn’t show any pessimism), as it was a good chance that the competition commission would block such a move, despite AT&T’s promises.
And this is what ended up happening: the American government launched a procedure to block the acquisition of T-Mobile USA by AT&T, believing that such a merger would significantly reduce competition, leading to a loss of diversity and insufficient competition in the country.
An expensive refusal While regulators followed the request made by the government, the rejection will cost AT&T heavily, with the company to pay 3 billion dollars in penalties to Deutsche Telekom – the parent company of T-Mobile, while also abandoning other arrangement which could cost a total of 7 billion dollars.
As soon as the blocking of the acquisition was announced, and confronting this new risk, investors took 5% off AT&T’s share price. "Only" 5% as not everything is lost yet for AT&T who will try and negotiate an acceptable agreement to get around some of the blocking points in exchange for approval from the regulator.
The carrier will increase their advertising to reinforce their message that, according to them, such a move would allow for lower prices and improved service quality through the merge of both companies’ allocated frequencies.