THE US government yesterday sued to block telecom giant AT&T's $39bn (€27bn) 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 break-up fee worth an estimated $6bn, including $3bn in cash, spectrum and a roaming agreement for T-Mobile USA.
The US Justice Department, in a lawsuit filed yesterday, said eliminating T-Mobile as a competitor would be disastrous for consumers and would raise prices, particularly as 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 was planning to fight the decision in court, said company lawyer Wayne Watts, adding that the Justice Department had given no indication that it was contemplating such a move.
The firm 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 fell more than 4pc on the news. Stock in rival Sprint rose 9pc.
The deal also would need the approval of the Federal Communications Commission (FCC), which regulates wireless telecommunications. FCC chairman Julius Genachowski said yesterday he was concerned about the deal's impact on competition.
"The important point is that the Justice Department has gone ahead and challenged a big merger of competitors, which it just hasn't done," said Eleanor Fox, a law professor at New York University. (Reuters/Bloomberg)