[September 01, 2011] Feds' move to block T-Mobile-AT&T merger could aid Sprint Tweet Sep 01, 2011 (The Kansas City Star - McClatchy-Tribune Information Services via COMTEX) -- The federal government's lawsuit Wednesday to stop AT&T's $39 billion merger with T-Mobile USA handed Overland Park-based Sprint Nextel Corp. at least a partial victory. Sprint's next move, some analysts say, could be to take over AT&T's role as suitor for T-Mobile, the nation's fourth-largest wireless carrier, but Sprint wasn't commenting beyond the news of the day. "If this deal in the end doesn't go through, then there's a pretty good chance that Sprint will end up with T-Mobile," said Timm Bechter, an industry analyst at Waddell & Reed Financial Inc. in Overland Park. "They will pick up that conversation again if this deal is terminated." Investors read the news favorably for Sprint, bidding up its stock by 21 cents, a 5.9 percent gain at its closing price of $3.76. Shares of AT&T fell $1.14, or 3.9 percent, to $28.48. AT&T, which had surprised the telecom world with its March bid for T-Mobile, vowed to "vigorously contest" the U.S. Department of Justice lawsuit. It complained that the antitrust action had come with "no indication" it was being contemplated. The Justice Department said it moved to block the merger after an "exhaustive investigation" and cited its "significant experience in this industry going back as far as the original breakup of AT&T" in the early 1980s. Sprint chief executive Dan Hesse has fought the merger publicly, including at a recent Senate subcommittee hearing. The company's statement Wednesday applauded the antitrust lawsuit, saying it would "ensure that consumers continue to reap the benefits of a competitive U.S. wireless industry." The Justice Department lawsuit, filed Wednesday in U.S. District Court in the District of Columbia, said that allowing two of the nation's "Big Four" wireless carriers to merge would be likely to mean "higher prices, less product variety and innovation, and poorer quality services" because of "reduced incentives to invest." The lawsuit relied in part on T-Mobile's description of itself as a "challenger brand" that employed "disruptive pricing" while innovating by offering the first cellphones driven by the Android software. Android smartphones have emerged as high-end competitors for Apple's iPhone. The court filing skirted AT&T claims that the merger would still leave several competitors in nearly all major markets. The lawsuit essentially dismissed smaller regional carriers as ineffective competitors against the Big Four. Competition among those largest companies happens nationally, the Justice Department lawsuit said, and the merger fails on anti-competitive concerns. If the merger went through, Sprint would be a much smaller No. 3 wireless company, behind AT&T and Verizon Wireless. The suit also measured concentrations of business the merger would create in the largest 100 markets and, again, found them unacceptable. Quick fight AT&T said it would seek an expedited hearing on the case. It noted that the Justice Department faced the burden of proof to show its antitrust concerns held up. Others noted that the lawsuit doesn't necessarily prevent an AT&T victory but makes a merger highly unlikely. "This is not the end of the game, but it's the beginning of the end," said Derek Turner, research director for Free Press, which opposed the merger along with other consumer groups. "AT&T has an enormous mountain to climb now." AT&T pins its case in part on benefits that it said the merger would bring. Combining with T-Mobile would "help solve our nation's spectrum exhaust situation and improve wireless service for millions," AT&T said. The merger also would expand faster 4G, or fourth-generation, mobile service to 55 million additional consumers, bringing better wireless speeds to 97 percent of the population. Finally, AT&T asserted that the merger would bring "tens of thousands of jobs" and billions of additional investment "at a time when our nation needs them most." Early Wednesday, before news of the Justice Department filing, AT&T announced it would return 5,000 call center jobs to the United States upon completing the merger. The Communications Workers of America, which represents many AT&T employees, said the merger would create 96,000 good jobs and allow unionized AT&T to absorb T-Mobile, which the CWA considers anti-union. The CWA statement said the decision to block the merger "is simply wrong." The Federal Communications Commission also is reviewing the proposed merger. Statements from two commissioners noted the importance of competitive issues in the agency's regulatory review. Political split More than half of the nation's governors have written letters supporting the merger. And in June, 76 Democrats in the House generally endorsed the deal in a letter to the FCC and Attorney General Eric Holder. "The benefits of nationwide, next-generation wireless broadband are manifest," the lawmakers wrote. "The pending AT&T merger helps realize that vision." For local lawmakers, the merger raises potentially difficult issues. The House Democrats' letter, for example, left Rep. Emanuel Cleaver, the head of the Congressional Black Caucus, in a potentially tough spot. Twenty members of the caucus signed the letter, potentially pitting them against Cleaver's constituents -- and Cleaver. The Kansas City Democrat told The Kansas City Star he'll fight the deal if he decides Sprint would be damaged. "I don't have any passion either way on the merger, as long as it leaves Sprint whole," Cleaver said. "The moment a merger threatens the stability of Sprint to the degree we're going to lose jobs, then obviously and necessarily I'm going to become more vocal." Cleaver's reluctance to fully oppose the merger may be based on the large number of telecommunication workers in his district. The CWA, which supports the merger, gave Cleaver a 100 percent rating for his votes in 2009 and 2010. Kansas Republicans Gov. Sam Brownback and Rep. Kevin Yoder asked the FCC in a joint statement to stop its review of the merger while the court case proceeded. But they did not expressly reject or endorse the merger. Sprint headquarters is in Yoder's district. Brownback and Yoder are generally considered supporters of free markets and free enterprise, making opposition to a merger more difficult for them philosophically. Kansas' U.S. senators also are Republicans. Sen. Pat Roberts declined to comment this week, and Sen. Jerry Moran said he would "monitor" the FCC and Justice Department review process. Sen. Claire McCaskill, a Missouri Democrat, said she was taking a "wait-and-see attitude." Half victory Sprint's statement on the lawsuit claimed blocking the deal would "preserve American jobs, strengthen the American economy and encourage innovation." Company officials declined a request for interviews. Although the lawsuit boosts Sprint's vocal opposition to the merger, it failed to echo some of the company's complaints. For example, Hesse had quickly labeled a post-merger landscape a "duopoly" that would leave Sprint a distant No. 3 competitor. He said AT&T and Verizon Wireless, currently the largest wireless carrier, already control 67 percent of the customers who buy service under contracts. Adding T-Mobile to No. 2 AT&T would give the two top carriers 79 percent of these customers, who generate the most revenue per user. The Justice Department cited "duopoly" concerns when it sued in May to prevent Kansas City-based H&R Block Inc.'s proposed acquisition of digital tax service TaxACT. Its suit to stop AT&T did not raise a duopoly complaint or differentiate between customers under contract and those who buy service month-to-month, generating less revenue for the companies. AT&T's surprise bid for T-Mobile came amid unconfirmed reports that Sprint was working on a deal for the U.S. operations of Germany-based Deutsche Telekom AG, which some believe would still be interested in some sort of deal. Not all analysts saw the federal antitrust action as helping Sprint, particularly if it is now eyeing T-Mobile. "Perhaps the biggest loser here is Sprint," Craig Moffett, senior analyst at Bernstein Research, wrote in a note to clients. "A plain reading of the ... complaint makes it clear that a Sprint/T-Mobile pairing would be equally unacceptable." Moffett also noted that cable companies, which have been seen as potential financial partners in Sprint's still brewing 4G strategy, might decide that an independent T-Mobile may be a better option. To reach Mark Davis, call 816-234-4372 or send email to [email protected]. To reach Dave Helling, call 816-234-4656 or send email to [email protected]. To reach Scott Canon, call 816-234-4754 or send email to [email protected]. ___ (c)2011 The Kansas City Star (Kansas City, Mo.) Visit The Kansas City Star (Kansas City, Mo.) at www.kansascity.com Distributed by MCT Information Services [ Back To TMCnet.com's Homepage ]