Cellular providers' $39 billion deal in doubt

The U.S. government is moving to block AT&T’s takeover of T-Mobile. The Justice Dept. filed suit Wednesday in U.S. District Court in Washington, saying the merger deal between the mobile giants violates U.S. antitrust law.

“We are seeking to block this deal in order to maintain a vibrant and competitive marketplace,” deputy attorney general James Cole said at a press conference.

The $39 billion deal, announced in March, would create a company with 130 million customers — and combine two of the nation’s four largest cellular providers. Those four providers provide cellular service for 90% of the nation’s subscribers, and Cole noted that T-Mobile and AT&T compete in 97 of the nation’s top 100 markets.

“Consumers … have benefited from competition among the nation’s wireless carriers,” he said. “This lawsuit seeks to ensure that everyone can continue to reap the benefits of that competition.”

The merger had been expected to face some opposition and would likely require significant modifications, but most telco observers had expected it to go through. Even on Wednesday morning before news of the Justice Dept.’s lawsuit, AT&T chief exec Randall Stephenson said on CNBC that the companies expected the deal to be done during the first quarter of 2012.

Should the courts agree with the Justice Dept., it will be a significant financial blow to AT&T. The terms of the agreement call for the carrier to pay a $3 billion breakup fee if the deal does not receive regulatory approval. They also require the company to provide T-Mobile with wireless spectrum in some regions and reduced charges for calls into its network. That package could be worth up to $7 billion, Deutsche Telekom said this month.

The mobile marketplace is increasingly important to entertainment companies as more consumers opt to watch programming on the go. The elimination of a major carrier could make it harder for content companies to strike deals that work in their favor — and could affect the transition to streaming video. (While cellphones are the obvious focus of the merger, the deal would also affect tablets, computers and other mobile devices that can be used for entertainment purposes.)

A survey unveiled at this year’s Futuresource Entertainment Summit found that 64% of iPhone users and 32% of other smartphone users use their smartphones to watch video. “Although the market is in its early stages, tablets will become the portable device for entertainment in the future, generating a new breed of applications and services that will breath additional life into this already lucrative market segment,” said Alison Casey, head of global content at Futuresource Consulting.AT&T shares closed down 3.85% following the news.

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