US moves to block AT&T's T-Mobile deal

 
City A.M. Reporter
The US government has sued to block AT&T's $39bn (£23.9bn) deal to buy T-Mobile USA because of anti-competition concerns, launching the biggest challenge to a takeover by the Obama administration.

A failed deal would be expensive for AT&T, which plans to fight the government's decision in court. It promised to pay a breakup fee worth an estimated $6bn, including $3bn in cash, spectrum and a roaming agreement for T-Mobile USA.

The Justice Department said in a lawsuit that eliminating T-Mobile as a competitor would be disastrous for consumers and would raise prices, particularly because the smaller provider offers low prices.

"Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer," said Sharis Pozen, acting head of the Justice Department's antitrust division.

AT&T will fight the decision in court, said company lawyer Wayne Watts, who added that the Justice Department had given the company no indication that it was contemplating such a move.

The company has argued the deal would let it add capacity and meet demand for high-speed wireless service.

"Clearly AT&T didn't expect this," said Pacific Crest Securities analyst Steve Clement. "It changes things for them with respect to the spectrum flexibility they'd have. They're going to have to be in the market to buy incremental spectrum."

The deal falling through might prompt Sprint Nextel, the smallest of the top three US carriers, to consider buying T-Mobile, a unit of Germany's Deutsche Telekom, he added.

AT&T shares have fallen more than 4 per cent while stock in rival Sprint rose 9 per cent.

The deal also would need the approval of the Federal Communications Commission, which regulates wireless telecommunications. On Wednesday, FCC Chairman Julius Genachowski said he is concerned about the deal's impact on competition.

The lawsuit is the biggest challenge to a takeover by the Obama administration, which includes former AT&T executive William Daley as Commerce Secretary.