Government sues to block AT&T, T-Mobile merger

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WASHINGTON (AP) - The Justice Department took the unusual step Wednesday to try to block AT&T’s $39 billion purchase of T-Mobile USA, arguing that the proposed merger would lead to higher wireless prices, less innovation and fewer choices for consumers.

Now AT&T, the nation’s No. 2 wireless carrier, and No. 4 T-Mobile are plotting a legal response to challenge federal regulators.

In its civil antitrust lawsuit, the Justice Department said the merger would stifle competition in the wireless industry. The deal, which is still under review at the Federal Communications Commission, would catapult AT&T past Verizon Wireless to become the nation’s largest wireless carrier, leaving Sprint Nextel as a distant third-place player and certain to struggle.

AT&T quickly signaled that it won’t abandon the transaction, leading to expectations of a fierce court battle.

AT&T has several incentives to take up a legal fight with regulators. In court, the burden is on the Justice Department _ not AT&T _ to show that the combination would harm competition. If the deal doesn’t go through, the company will be forced to pay T-Mobile a $3 billion break-up fee and give it some wireless spectrum rights.

AT&T said it will ask for an expedited court hearing “so the enormous benefits of this merger can be fully reviewed.”

In a statement, T-Mobile’s owner, the German company Deutsche Telekom, said it is disappointed by the Justice Department’s action and “will join AT&T in defending the contemplated merger.”

The companies could wage a strong defense in court.

Morgan Reed, executive director of the trade group, Association for Competitive Technology, said AT&T has at least one key fact on its side: Deutsche Telekom has said it does not plan to continue to invest in upgrading the T-Mobile network to deliver faster wireless. That means, “T-Mobile is not a competitor anymore,” Reed said.

“T-Mobile has already stepped away from the table,” Reed noted. “We’re at three nationwide wireless carriers no matter what.”

The association, which represents more than 3,000 small and independent application developers, believes the merger would benefit the wireless broadband industry.

In addition, the Justice Department lawsuit portrays T-Mobile as having been a strong competitor in the past, but merger analysis is forward looking, said Washington attorney Robert Bell, who has represented clients in mergers for over 25 years.

“To the extent AT&T can show there’s good reason to believe that T-Mobile is going to be a very different kind of competitor in the future _ for example, weaker financially, less innovative _ then the lawsuit becomes quite a bit different,” Bell said.

University of Notre Dame law professor Joseph Bauer said he was “pleasantly surprised” by the Justice Department’s challenge of the deal because it has become so rare for the antitrust regulators to block major mergers during the past decade.

During a news conference, Deputy Attorney General James Cole said 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 mobile wireless services.”

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