US government files suit to block AT&T, T-Mobile merger (updated)

The U.S. government has just filed papers to block AT&T’s proposed $39 billion purchase of T-Mobile, Bloomberg reports.

The Justice Department argues that the merger would “substantially lessen competition” in the wireless market, according to the filing. The DOJ goes on to say: “AT&T’s elimination of T-Mobile as an independent, low-priced rival would remove a significant competitive force from the market.”

If the deal falls through, AT&T would have to pay T-Mobile’s parent company, Deutsche Telekom, a massive $3 billion breakup fee in cash. The company would also owe DT an additional $3 to $4 billion in spectrum and services, bringing its total payout if the deal falls through to as much as $7 billion.

Ironically, AT&T just this morning pledged that the deal would bring 5,000 jobs to America. AT&T previously said that the merger would be beneficial to consumers since it would allow the company to more easily deploy its LTE 4G network across the country.

It’s hard to be surprised by the suit. We’ve argued previously that this deal will test antitrust law. Microsoft, Facebook and several VC firms have filed letters in support of the merger.

The news is also a win for Sprint CEO Dan Hesse, who has been doing his damndest to block the merger. Hesse previously said the merger will give AT&T and Verizon a stranglehold on the cellular market in America. “The industry just won’t be as innovative and as dynamic as it has been,” he said. “It’ll gum up the works when everything has to go through these two big tollbooths, one that’s called AT&T and one that’s called Verizon.”

The deal isn’t dead yet though. The government’s suit will certainly serve as a major hurdle, but it’s possible that AT&T will be able to convince regulators that its T-Mobile merger will ultimately be helpful to consumers.

Update: AT&T has issued a response to the suit:

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.

We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed. The DOJ has the burden of proving alleged anti-competitive affects and we intend to vigorously contest this matter in court.

At the end of the day, we believe facts will guide any final decision and the facts are clear. This merger will:

• Help solve our nation’s spectrum exhaust situation and improve wireless service for millions.
• Allow AT&T to expand 4G LTE mobile broadband to another 55 million Americans, or 97% of the population;
• Result in billions of additional investment and tens of thousands of jobs, at a time when our nation needs them most.

We remain confident that this merger is in the best interest of consumers and our country, and the facts will prevail in court.