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7 states join U.S. Justice Department lawsuit to stop AT&T deal for T-Mobile

Giant Telco / Wireless merger raises anti-competition fears across several states

Seven U.S. states, including California, Pennsylvania, Ohio, Illinois and New York, said Friday they had joined the Justice Department’s efforts to block AT&T’s US$39 billion purchase of T-Mobile USA.

Industry experts said that the state’s involvement in the case added significant pressure to the effort to prevent the proposed sale — which many believe may already be on the verge of collapse. Ever since the two wireless carriers announced plans to merge last March, public interest groups have criticized the move, stating the sale would harm consumers by reducing the affordability of wireless phone plans and slow innovation in the wireless industry.

The Justice Department’s complaint reflects those concerns and called for the courts to consider the long-term effects of the deal, which it said would be disastrous for cellphone owners and smaller carriers.

“AT&T’s elimination of T-Mobile as an independent, low-priced rival would remove a significant competitive force from the market,” the complaint said. “Customers of mobile wireless telecommunications services likely will face higher prices, less product variety and innovation, and poorer quality services due to reduced incentives to invest than would exist absent the merger.”

The amended filing comes ahead of a court hearing next week, when the sides are scheduled to discuss the prospects of a settlement.

Craig Moffett, an analyst at Sanford C. Bernstein who follows the telecommunications industry, said that the complaint from the states was likely to complicate AT&T’s bid to buy T-Mobile.

“The addition of the states adds weight to the D.O.J.’s case in court,” Mr. Moffett said. “This makes it all the more unlikely that the D.O.J. can find an acceptable settlement with AT&T.”

In a statement, an AT&T spokesman said the company would continue its efforts to complete the sale. “We will continue to seek an expedited hearing on the D.O.J.’s complaint. On a parallel path, we have been and remain interested in a solution that addresses the D.O.J.’s issues with the T-Mobile merger.”

The AT&T spokesman added that the company had received encouragement and letters of support from 11 other states.

However as stated in AT&T’s response to the complaint, AT&T claims, "Although the transaction will remove T-Mobile as an independent competitor, no significant consumer harm will result."

In other words, AT&T is leaving the door open to the possibility that consumers may be harmed by what it considers to be "a little bit", but that the extent of the harm will not be enough to be considered "significant" -- not by AT&T's standards at least.