U.S. Moves to Block AT&T/T-Mobile Deal

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NEW YORK (TheStreet) -- U.S. regulators moved to block the $39 billion proposed merger of AT&T (Stock Quote: T) and Deutsche Telekom's (Stock Quote: DT) T-Mobile.

Even though AT&T tried a last-minute bribe of promising 5,000 new U.S. jobs to help gain support for the deal, the Justice Department filed a complaint to fight the combination of the nation's No. 2 and No. 4 wireless carriers.

The Justice Department said the merger would have resulted in "higher prices, fewer choices and lower quality products" for consumers, U.S. Deputy Attorney General James Cole said at a press conference Wednesday.

The deal would have consolidated control of an estimated 80% of the mobile market into the hands of AT&T and Verizon (Stock Quote: VZ), and, on its face, seemed unpalatable to consumer watchdogs and regulators looking to preserve a vibrant market with healthy price competition and innovation.

The move is similar to the Justice Department's action in 2000 to derail the $115 billion proposed merger of WorldCom and Sprint(Stock Quote: S). In that case, after months of review, Justice chief Joel Klein turned the agency's efforts toward building a legal case against the WorldCom/Sprint merger, which would have concentrated 75% of the long-distance market in the hands of two players.

While the move was not a complete shock, investors did hit the sell button, sending AT&T shares down 3% and Deutsche Telekom's stock down 5% immediately after the news broke.

AT&T seeks to acquire its price-cutting rival T-Mobile in an effort to expand its network and capitalize on the wireless spectrum assets it would gain.

Analysts expected the deal to receive close scrutiny. Had the deal moved forward, it was likely to face an enormous number of conditions, including the divestiture of overlapping network operations in 97 cities throughout the nation.

Sprint, the No. 3 player that stood to lose even more ground in the wireless market, saw its shares shoot up 9% Wednesday.

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