The Justice Department suit to block AT&T’s merger cast shadows over the fate of Google’s Motorola acquisition, but the Internet giant may still manage to escape forceful action.
The DoJ’s filing against AT&T’s $39 billion acquisition of T-Mobile will likely scuttle the deal between the two carriers, which would have altered the mobile landscape and changed industry dynamics.
The DoJ cited reduced competition as a major reason for opposing the merger, saying it would leave consumers with much less choice and higher prices, in one of the first major antitrust actions of the Obama administration.
With the Justice Department coming out strongly and unexpectedly against AT&T/T-Mobile, many now question whether Google’s equally major acquisition of Motorola will be subject to similar action.
However, closer examination of the filing against AT&T, along with scrutiny of Google’s own deal with Motorola, reveals the two transactions are very different in nature, giving the search giant a way out.
AT&T’s deal with T-Mobile is a classic horizontal merger, in which market competitors join up, reducing competition across the board. The two carriers are direct competitors in both product and services, and a combination of both would reduce the number of options for consumers.
The combined entity would control more than 40 percent of the wireless market in more than half of defined market territories, according to the DoJ’s analysis in the filing, creating an unacceptable lack of competition in the wireless market.
Horizontal mergers have historically been the focus of the DoJ’s anti-monopoly lawsuits, which generally oppose consolidation of competitors. The regulatory body has previously exerted its influence to halt horizontal consolidation, opposing the merger between Sprint and MCI Worldcom in 1999, for example.
The deal between Google and Motorola, however, is considered a vertical merger, in which companies at different places in a chain of products join together. Neither are direct competitors in the market, with Google focused on software and services and Motorola primarily operating in hardware. Antitrust opposition to vertical deals are much rarer from the DoJ, according to legal experts.
The Google-Motorola acquisition will still undergo regulatory scrutiny for its antitrust impact, which will likely fall on patents. The Mountain View, Calif.-based company is widely seen to have bought Motorola for its patent holdings as Google’s Android OS increasingly becomes the target of intellectual property lawsuits.
Motorola’s large trove of patents will help armor its software, and Google is also expected to reap considerable revenue from licensing Motorola patents, exerting IP leverage across the industry.
However, Google has a relative paucity of patents compared to many of its rivals. The search engine giant will likely argue its acquisition of Motorola’s patents will level competition across the board in this respect, especially in light of the sale of Nortel patents to a consortium of companies including Microsoft, Apple and RIM.
The DoJ’s suit against the AT&T/T-Mobile merger, therefore, may have little direct impact on the Google-Motorola deal. However, with a newly energized Justice Department clearly ready to oppose horizontal mergers, the strategies of companies like Google, which rely heavily on acquisitions, may proceed more cautiously in the future.