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Posted at 04:44 PM ET, 09/16/2011

AT&T, T-Mobile merger faces new obstacle as seven states join DOJ lawsuit

T-Mobile USA Inc. and AT&T Inc. signage is displayed on stores in New York, Aug. 31, 2011. Photographer: Stephen Yang/Bloomberg (Stephen Yang - BLOOMBERG)
This story has been updated.

Seven states on Friday joined the Justice Department in a federal lawsuit to block AT&T’s proposed $39 billion bid for T-Mobile, as the companies struggle to save a deal that Justice has called bad for consumers and anticompetitive.

The attorney generals — a bipartisan group — from California, Illinois, Massachusetts, New York, Ohio, Pennsylvania, and Washington joined the suit filed in the U.S. District Court of the District of Columbia. They argued that the deal would violate antitrust laws by reducing the number of wireless carriers from four to three national companies and removing an important lower-cost competitor.

“We have had an excellent working relationship with a number of state attorneys general and they have provided invaluable assistance throughout our investigation,” Justice said in a statement. “Together, we will seek to protect consumers from the anticompetitive harm that would result from this proposed transaction.”

Federal Judge Ellen Huvelle is scheduled to hold a hearing Wednesday, Sept. 21, on a schedule for Justice’s case. AT&T and T-Mobile have said they will fight the suit but also hope to resolve Justice’s concerns through private settlement talks.

Justice proposed in a separate filing for a hearing date of March 19, 2012. It said AT&T and T-Mobile, who want an expedited hearing, propose Jan. 16, 2012 for trial.

If the case is not complete by Sept. 2012, AT&T will have to pay a penalty of nearly $6 billion in cash and spectrum assets.

Experts say the addition of the seven states may make it more difficult for AT&T and T-Mobile to reach a settlement with Justice, which on Friday filed an amendment to its original complaint.

“This makes things a little harder because what it shows is that states want to make sure that Justice doesn’t wimp out and settle on bad terms,” said Robert Lande, a professor of law at the University of Baltimore.

He noted that states joined Justice in their 1998 antitrust lawsuit against Microsoft. Even though Justice ended up settling with Microsoft, the company also had to resolve state legal battles, he said.

“I would think it vastly complicates the process of negotiating a resolution and makes it more likely that the case will need to be fully litigated,” said Andy Gavil, an antitrust law professor at Howard University. “In fact, part of the strategy here for both the Justice Department and the states may have been to fortify their collective ability to resist political pressure to settle.”

AT&T downplayed the significance of the additional state opposition. Spokesman Michael Balmoris said it is not unusual for states to join federal regulators in cases against mergers. He noted that several state attorneys general support the deal and 15 Democratic lawmakers this week asked the Obama administration to settle with the companies to preserve the merger.

“We will continue to seek an expedited hearing on the DOJ’s complaint,” Balmoris said. “On a parallel path, we have been and remain interested in a solution that addresses the DOJ’s issues with the T-Mobile merger.”


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By  |  04:44 PM ET, 09/16/2011

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