Investors cheered AT&T's dramatic plan to buy Deutsche Telekom's T-Mobile unit for $39 billion, but consumer groups warned the deal could lead to higher prices and fewer choices in the marketplace.
The deal, which would make AT&T the larger wireless provider in the U.S., provided a boost to financial markets, and after jumping three percent at the market open, AT&T shares closed up 1.15 percent.
Shares of Deutsche Telekom, meanwhile, soared up more than 11 percent as investors applauded the company's move to unburden itself from T-Mobile, which, despite having a reputation for good service, has gotten thrashed by AT&T and Verizon, both of which now offer Apple's iPhone.
T-Mobile does not.
This move makes sense for AT&T because the company gets over 30 million new customers, as well as valuable wireless spectrum adjacent to spectrum it already owns.
Analysts warned that the deal could face stiff anti-trust review, but as Stifel Nicolaus analyst Rebecca Arbogast noted dryly, "AT&T has a sterling record of getting deals approved by the government."
That's putting it politely. AT&T has one of the most -- if not the most -- powerful corporate lobbies in Washington, D.C., and you can bet AT&T's lawyers will be working over-time to bend the ears of lawmakers and regulators to get this deal approved.
AT&T has spent nearly $50 million on political donations over the last two decades, according to the Center for Responsive Politics, making it the number one corporate political donor.
Arbogast said the Justice Dept. will likely tale the lead role because this is a horizontal merger, and it's possible regulators will ask AT&T to make some concessions, or divest some assets, including possibly wireless spectrum, but it's hard to see officials blocking this deal outright.
The deal would effectively take out a big player in the market, T-Mobile, and reduce the number of major carriers from four to three, with Sprint far behind the two market leaders, AT&T and Verizon Wireless. AT&T would become the only major provider using GSM technology.
Glenn Manishin, a lawyer and antitrust expert who focuses on tech and telecom issues, said "four to three is better than three to two," but added that the Justice Dept. will scrutinize the deal closely "due to spectrum barriers to entry." That means the feds might be concerned that smaller players might be boxed out from acquiring wireless spectrum.
Another issue for regulators to monitor is whether fewer players in the mobile space will actually decrease competition for wireless spectrum, driving down spectrum-auction revenue for the U.S.
As for the Federal Communications Commission, consumer groups are already warning the FCC of possible adverse consequences.
“The combination of the second-largest wireless carrier, AT&T, with the fourth-largest, T-Mobile is, as former FCC Chairman Reed Hundt once said, ‘unthinkable,'" Gigi Sohn, president of Public Knowledge, said in a statement. "The wireless market, now dominated by four big companies, would have only three at the top. We know the results of arrangements like this – higher prices, fewer choices, less innovation."
But Arbogast disagreed.
"We don’t expect the FCC chairman will declare it to be unthinkable as Reed Hundt did in immediate response to the rumored AT&T-SBC deal years ago," Arbogast wrote in a note to clients Monday.
Some critics are concerned that the deal will result in higher prices for consumers, especially given that T-Mobile is known for low prices relative to other mobile giants.
But Philip Redman, an analyst at Gartner, told CNNMoneythat he would be "surprised if it made an impact on pricing at all."
In a statement, Rep. Anna G. Eshoo, the California Democrat who is ranking member of the the Energy and Commerce Communications and Technology Subcommittee, called for oversight hearings looking into the deal. Also Monday, House Judiciary Committee Chairman Lamar Smith, the Texas Republican, said his committee would hold hearings on the deal.
