The Justice Department is seeking to block AT&T Inc.'s $39-billion plan to buy T-Mobile USA Inc., claiming that combining the two wireless giants could stymie competition and innovation.
The agency filed a civil antitrust lawsuit Wednesday morning in federal court in Washington that would prevent AT&T, which has the second most subscribers in the country, from acquiring fourth-largest T-Mobile.
The deal, according to the Justice Department, would displace Verizon Wireless as the largest wireless carrier in the U.S., leading to higher prices, lower-quality services, a smaller pool of choices and fewer pioneering technologies for millions of Americans.
Consumers in rural areas or with lower incomes would be especially hard-hit, Deputy Atty. Gen. James M. Cole said in a statement.
AT&T said it was "surprised and disappointed" by the Justice Department's move, saying that it had met often with the agency to work over the potential pitfalls of the deal. The company said it planned to "vigorously contest this matter in court" and intended to request an expedited hearing to review the "enormous benefits" of the acquisition.
Wayne Watts, the company's senior executive vice president, said in a statement that the deal, announced in March, "is in the best interest of consumers" and could help improve wireless service for millions .
The proposed purchase had sparked heavy protests from consumer groups and rival telecom companies. With more than 300 million phones, tablets and other mobile wireless devices in service across the country, AT&T, T-Mobile, Sprint and Verizon dominate more than 90% of the market, the government said.
Taking T-Mobile out of play would eliminate Dallas-based AT&T's need to compete on operational efficiency and aggressive pricing, the Justice Department said. T-Mobile is based in Bellevue, Wash. and is owned by German company Deutsche Telekom.
"This ought not to be a big surprise," the nonprofit law firm Media Access Project said in a statement. "This is arguably the most anti-competitive move in recent American economic history. It is heartening that the Department of Justice has withstood withering political pressure from AT&T to do the right thing for the American public."
After asking AT&T and T-Mobile for more information about the competitive concerns, the Federal Communications Commission last week continued its review of the proposed takeover. Though the consideration process is still incomplete, Chairman Julius Genachowski said Wednesday that what his agency has seen so far "also raises serious concerns."
"Vibrant competition in wireless services is vital to innovation, investment, economic growth and job creation, and to drive our global leadership in mobile," he said in a statement.
AT&T shares were down 4.7% to $28.30 in morning trading and Deutsche Telekom shares trading fell 8% to about $12.70 in late-afternoon trading in Europe.
But shares of Sprint, which would have been dwarfed by its combined competitors, was up more than 8% to $3.84.
Earlier in the day, AT&T announced that it would repatriate 5,000 call-center jobs to the United States that had been outsourced overseas if the takeover of T-Mobile goes through.
"At a time when many Americans are struggling and our economy faces significant challenges, we're pleased the T-Mobile merger allows us to bring 5,000 jobs back to the United States and significantly increase our investment here," said Randall Stephenson, AT&T chairman and chief executive.
Stephenson's statement was applauded by labor union leaders.
"Cuts in wages, benefits and jobs have become the new normal in America, so that when a company like AT&T takes action to bring back quality jobs, it's big news," said Larry Cohen, president of the Communications Workers of America union.
The proposed merger is being studied by the FCC. The California Public Utilities Commission also is investigating the pros and cons of the proposed deal.
Times staff writer Marc Lifsher contributed to this report.