U.S. Government sues to stop AT&T and T-Mobile Merger

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NEW YORK (CNNMoney) — The U.S. Department of Justice filed an antitrust lawsuit against AT&T on Wednesday seeking to block its $39 billion merger with T-Mobile.

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The merger would create the largest wireless company in the United States, combining AT&T’s 98 million customers with T-Mobile’s 34 million users, for a total of 130 million subscribers. AT&T is currently the second-largest wireless company by number of subscribers, and T-Mobile is fourth.

The DOJ said the merger would lead to a situation in which just two companies — the AT&T-T-Mobile combination and Verizon Wireless — would dominate the mobile market. The new AT&T and Verizon would account for more than two-thirds of wireless subscribers and 78% of the wireless industry’s revenues.

“We feel the combination of AT&T and T-Mobile would result in tens of millions of consumers across the U.S. facing higher prices, fewer choices, and lower quality products for wireless services,” James Cole, deputy attorney general, said in a press conference Wednesday.

The Federal Communications Commission, which oversees the wireless industry, is in the midst of its own review of the proposed merger.

Following the DOJ’s announcement, FCC Chairman Julius Genachowski said that the agency also believes the merger raises “serious concerns about the impact … on competition.”

Shares of AT&T (T, Fortune 500) tumbled more than 4%.

Wayne Watts, AT&T’s general counsel, said in a statement that the company was “surprised and disappointed by today’s action.” He went on to say that the company remained “confident that this merger is in the best interest of consumers and our country, and the facts will prevail in court.”

AT&T has claimed that the merger is necessary in order to significantly expand its faster 4G wireless network to compete with Verizon (VZ,Fortune 500). Without the acquisition, AT&T says it would lack the necessary wireless spectrum and wherewithal to cover 97% of the U.S. population with 4G.

But the Justice Department said it didn’t buy AT&T’s argument. Following what the regulator called “an exhaustive investigation,” the DOJ said it concluded that AT&T did not need to buy T-Mobile to remain competitive, and that the company could deploy next-generation technology by simply investing in its own network.

“AT&T had not demonstrated that the proposed transaction promised any efficiencies that would be sufficient to outweigh the transaction’s substantial adverse impact on competition and consumers,” the DOJ said in a statement.

Sprint (S, Fortune 500) and many of the smaller carriers have argued that the merger will harm competition and raise prices for consumers, because it would eliminate T-Mobile, the last low-cost carrier with a national footprint.

“By filing suit to block AT&T’s proposed takeover of T-Mobile, the DOJ has put consumers’ interests first,” Vonya McCann, Sprint’s senior vice president of government affairs, said in a written statement.

The DOJ said it concurred with the smaller carriers’ opinions, noting that the agency filed the lawsuit to protect price competition. The regulator labeled T-Mobile as an important source of competition in the wireless market.

“Any way you look at this merger, it is anticompetitive,” said Sharis Pozen, acting head of the DOJ’s antitrust division. “It raised serious concerns, and we believe it violates the law.”

The lawsuit does not necessarily mean the deal won’t get done.

In April, the DOJ filed an antitrust lawsuit against Google (GOOG,Fortune 500), following its $700 million takeover bid for ITA, the world’s largest airline search software company.

The DOJ and the search giant then quickly settled the claim, with the Justice Department approving the deal, provided that Google accept certain concessions and restrictions.

Via: CNN/Fortune