The Justice Department asserted that the combination of the second and fourth largest cell phone companies in America would hurt competition and result in a price increase for consumers.
A statement from the US Justice Department added that "AT&T's elimination of T-Mobile as an independent, low-priced rival would remove a significant competitive force from the market.”
The lawsuit would be the biggest antitrust challenge yet by the Obama administration. According to Bloomberg, the move would also be a departure from the Justice Department’s recent strategy of approving large mergers after adding conditions as it did with Comcast Corp.’s purchase of NBC Universal and Ticketmaster Entertainment Inc.’s merger with Live Nation Inc.
AT&T intends to fight the decision in court, said company lawyer Wayne Watts, who added that the company was caught by surprise of the decision as the Justice Department had previously given no indication that it was even contemplating such a move.
If the deal fails to go through, AT&T stands to lose billions in breakup and administration fees. The cell-phone carrier had earlier promised to pay a breakup fee worth an estimated $6 billion – including $3 billion in cash, spectrum and a roaming agreement – to T-Mobile USA’s parent company in Germany Deutsche Telekom.
In response to the news, AT&T shares fell by $1.26, or more than 4 percent, to $28.35. In contrast, stock in rival company Sprint Nextel Corp – the third largest cell phone company in the US – rose by 9 percent to $3.85.