Justice Department Sues to Block AT&T’s Acquisition of T-Mobile

The U.S. Department of Justice is suing to block AT&T’s (NYSE:T) proposed $39 billion acquisition of T-Mobile, a deal that would create the nation’s largest wireless carrier. The department filed the suit ont he grounds that the merger would result in “tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for their mobile wireless services,” according to deputy attorney general James M. Cole.

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The complaint, filed in the U.S. District Court in Washington, D.C., says that T-Mobile, currently fourth among only four national carriers in the U.S, currently “places important competitive pressure on its three larger rivals, particularly in terms of pricing, a critically important aspect of competition.” T-Mobile’s services are notoriously cheaper than those of its competitors Verizon (NYSE:VZ) and AT&T. And while there are smaller telecommunications providers around the country, none of their voice networks “cover even one-third of the U.S. population,” according to the Justice Department, “and the largest of these smaller carriers has less than one-third the number of wireless connections as T-Mobile.”

The complaint goes on to say that, “unless this acquisition is enjoined, customers of mobile wireless telecommunications services likely will face higher prices, less product variety and innovation, and poorer quality services due to reduced incentives to invest than would exist absent the merger.” It also notes T-Mobile’s innovations in technology — the carrier was the first to use Google’s (NASDAQ:GOOG) Android operating system and BlackBerry (NASDAQ:RIMM) wireless e-mail — as evidence of the important role it has played in advancing the industry.

Though AT&T (NYSE:T) has yet to comment on the complaint, it is unlikely to back down from a merger many months in the making. The merger has been under review by government regulators since it was announced in March, and AT&T is well prepared to answer any objections it may face.

AT&T (NYSE:T) shares fell 4% immediately following the news, while shares of T-Mobile’s parent, Deutsche Telekom, fell 5%. Shares of competitor Sprint Nextel are up more than 6%.