The Justice Department moved today to block AT&T's merger with T-Mobile USA with a federal antitrust lawsuit, saying the $39 billion deal "would substantially lessen competition" in the U.S. wireless market.
"Any way you look at this transaction, it's anticompetitive," DOJ acting antitrust chief Sharis Pozen said at a press conference today. "Unless this merger is blocked, competition and innovation in the U.S. wireless market... will be diminished and consumers will suffer."
After an "exhaustive" review, the DOJ concluded the proposed acquisition violated the law and moved to block the deal in court, Pozen said.
The complaint could be a fatal blow to the mega-merger, which has been met with vocal opposition from consumer groups and competing operators, namely Sprint Nextel.
AT&T general counsel Wayne Watts said the company was caught off guard by the DOJ's decision.
"We are surprised and disappointed by today's action, particularly since we have met repeatedly with the Department of Justice and there was no indication from the DOJ that this action was being contemplated," Watts said in a statement, adding that AT&T intends to "vigorously contest this matter in court."
AT&T plans to appeal the suit and will ask for an expedited hearing on the case. DOJ has the burden of proving to the court that the deal is anticompetitive.
"We remain confident that this merger is in the best interest of consumers and our country, and the facts will prevail in court," Watts said.
AT&T has agreed to pay T-Mobile parent Deutsche Telekom $3 billion if the merger is ultimately blocked by regulators.
The FCC, which also has authority over the merger, has not yet made a decision.
Pozen shied away from saying whether the FCC would also oppose the transaction, but said the agency had been a "close partner" in the DOJ's decision.
FCC Chairman Julius Genachowski said in a statement that the DOJ's decision "raises serious concerns" about the deal's effect on competition.
"Competition is an essential component of the FCC's statutory public interest analysis, and although our process is not complete, the record before this agency also raises serious concerns about the impact of the proposed transaction on competition," he said.
The DOJ said the efficiencies of the deal touted by AT&T did not outweigh the transaction's "substantial adverse impact."
"AT&T could obtain substantially the same network enhancements that it claims will come from the transaction if it simply invested in its own network without eliminating a close competitor," the DOJ said in a statement.
The DOJ's suit alleges the proposed acquisition would violate federal antitrust laws by removing a "significant competitor" from the marketplace. AT&T and T-Mobile compete in 97 of the country's 100 largest wireless markets.
"AT&T's acquisition of T-Mobile would eliminate a company that has been a disruptive force through low pricing and innovation by competing aggressively in the mobile wireless telecommunications services marketplace," the DOJ said.
The complaint cites a number of new products first brought to market by T-Mobile, including the first Android smartphones, BlackBerry e-mail, the Sidekick, national Wi-Fi hotspot access, unlimited plans and HSPA+ service.
AT&T has tried to sweeten the deal by promising to deploy LTE to more rural areas and this week said it would bring back 5,000 outsourced call center jobs to the United States if regulators approve the merger. The operator also said that it would not lay off any of its own call center employees or those working at T-Mobile who are on the payroll when the merger closes.