The government filed an antitrust suit against AT&T to block its $39 billion acquisition of T-Mobile Wednesday, claiming it would ruin competition in the industry.

Carson Varner, professor of finance, insurance and law, said  IBM was part of a similar lawsuit in 1981 because they had 90 percent of the market in mainframe computers. The Reagan administration took a free market approach to the issue.

“Let the market do it as long as they have proper business practices. That has been the philosophy for the last thirty-some years. Let the market do just about everything,” Varner said.

Eric Ruud, instructional assistant professor of finance, insurance and law, said the federal government has a fundamental interest in assuring that companies do not become monopolies.

“Historically, the goal of the federal government is to make sure everyone has a level playing field, that no business gets too big to where it dominates the market,” Ruud said.

If a company gets too big, it can run competitors out of business. The possible end result is that the monopoly could charge any price it wanted for a product, Ruud said. 

“The government is using federal law to stop that, or at least get them to pause, so that the government can analyze and make sure that they don’t become the only telecommunications company some day,” Ruud said.

The government has to prove  there is an anti-competitive effect as a result of the merger between the two companies, Ruud explained. Driving a competitor out of business is one of the possible effects.

Varner said AT&T’s motive for aquiring T-Mobile is just as strong an argument as the government’s reason to block the merger.

“On the AT&T side, they said, ‘If we have all of this together, we’re going to be able to craft our products in such a way as  we’re going to give the customer more choices. We can be thinking about the customer rather than trying to beat the competitor,’” Varner said.

Ruud explained AT&T’s argument that claims it needs the help of T-Mobile to give customers the services they desire.

“The nature of the beast is that there are a lot of inefficiencies that are associated, and if you expect [AT&T] to try to bring, let’s say 3G, 4G and the internet to close to 100 percent of the people in this country, the only way [AT&T] is giong to get this done is if they merge with this other company,” Ruud said.

Varner explained two different types of mergers. One type merges the companies and issues brand new stock which is split between the two merging companies. The merger of AT&T and T-Mobile is an acquisition, Varner said.

“What they’re doing is, they’re giving the share holders of T-Mobile shares in AT&T and cash. And, so the negotiation is ‘How many shares? How much dough,” Varner said.

The case is interesting considering there hasn’t been much antitrust or anti-monopoly activity since the Reagan administration, Varner added.

“In my younger days, these things would come up all the time. Some merger that might tend to lessen competition. But we’ve been in an era for thirty years of ‘do what you want,’ so it is sort of interesting to see the clock turning back,” Varner said.