AT&T, T-Mobile Deal Set For Trial - InformationWeek

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9/22/2011
02:44 PM
Eric Zeman
Eric Zeman
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AT&T, T-Mobile Deal Set For Trial

AT&T plans to argue that the merger with T-Mobile is a good idea because of efficiencies.

AT&T and its vast legal team met with the Department of Justice Wednesday to discuss AT&T's proposed acquisition of T-Mobile. Rather than ask for the lawsuit to be summarily dismissed, AT&T said it wanted a trial. The judge selected February 13, 2012.

What argument will AT&T use to convince the government that its T-Mobile merger is a good idea? Efficiencies.

"Efficiencies will be the core of the debate in court," said AT&T CEO Randall Stephenson, speaking at an investor conference. "It's an industry where efficiencies are critical to keeping prices in check."

AT&T should be able to take the combined AT&T and T-Mobile entity and make it a more efficient business and achieve economies of scale that allow it to pass down savings to consumers, right? The trouble is, that's not what happened when AT&T and Cingular merged back in 2007. The two companies were so ineptly merged that problems persisted for years.

Beyond that, AT&T accused the Justice Department of not coming "to grips with the significant efficiencies this transaction will generate." But which efficiencies is AT&T talking about?

One way to look at "efficiencies" would be to say that the merged companies would eliminate redundancies, such as marketing departments, accounting departments, and so on. In other words, they'd cut jobs that are duplicated across both companies to reduce costs. That's normal M&A behavior.

Other synergies? Cutting down on the number of outside suppliers and focusing on core partners. That sounds good for a lucky few, but not the industry at large.

AT&T has not previously played the "efficiencies" card. Instead, AT&T claims it will bring 5,000 jobs back to the U.S. Adding 5,000 jobs, as good as that sounds in today's economic climate, hardly smacks of efficiencies.

The judge overseeing the case has set aside six weeks to hear arguments from AT&T and the Department of Justice. The DOJ believes the merger will reduce consumer choice and raise consumer prices. Others, such as Cellular South and Sprint, agree. They've filed their own lawsuits. And seven states have piled onto the DOJ's lawsuit against AT&T.

AT&T is no doubt in for a tough fight.

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