• by Wendy Davis  @wendyndavis, August 31, 2011

In a move hailed by broadband advocates, the Department of Justice moved to block AT&T's planned $39 billion merger with T-Mobile.

"AT&T's elimination of T-Mobile as an independent, lowpriced rival would remove a significant competitive force from the market," the Justice Department said in papers filed Wednesday in the U.S. District Court in Washington. "Additionally, T-Mobile's investment in an advanced high-speed network, and its innovations in technology and mobile wireless telecommunications services have provided, and continue to provide, consumers with significant value."

The DOJ argues that the merger -- which would have left two companies, Verizon and AT&T/T-Mobile, controlling around 80% of the wireless market -- violates federal antitrust law. The agency is asking a court to issue an injunction banning the companies from going ahead with the deal.

DOJ says in court papers that T-Mobile's disappearance as an independent company would hurt consumers in at least two ways. First, T-Mobile offers lower-priced plans than AT&T and Verizon. Second, T-Mobile has beaten its rivals in bringing several innovations to the U.S.

The complaint references an internal T-Mobile document, "T-Mobile Firsts: Paving the way one first at a time," which says that the company was responsible for the first Android handset, BlackBerry wireless e-mail, Sidekick and national WiFi hotspot access, among others.

AT&T and T-Mobile's parent company, Deutsche Telekom, both said they will defend the merger in court. "We are surprised and disappointed by today's action, particularly since we have met repeatedly with the Department of Justice and there was no indication from the DOJ that this action was being contemplated," AT&T's general counsel Wayne Watts said in a statement.

The company said it would request an expedited hearing. "We remain confident that this merger is in the best interest of consumers and our country, and the facts will prevail in court."

But consumer groups and Net neutrality advocates cheered the DOJ's move. "Those who care about the free and open Internet can breathe a sigh of relief," says S. Derek Turner, researcher director at Free Press. "The scuttling of this deal certainly means that AT&T will have less ability to impose their will on the wireless marketplace."

He adds that the merger would have left the market concentrated "in the hands of two companies (Verizon and AT&T) that are very hostile to Net neutrality."

In the past, AT&T riled neutrality advocates by restricting the SlingPlayer app to the Wi-Fi network. The carrier lifted the ban last year, after neutrality groups complained to the Federal Communications Commission.

In addition, in 2009 neutrality advocates asked the FCC to investigate whether AT&T and Apple were violating net neutrality principles by limiting Skype's usefulness on the iPhone. At the time, Apple refused to approve a Skype iPhone app for free telephone service that would have worked on AT&T's 3G network. Instead, the app only allows iPhone users to make calls with Skype on a Wi-Fi network. AT&T later dropped its opposition to VoIP apps on the iPhone.

Sen. Al Franken (D-Minn.) an ardent neutrality supporter, emerged as one of the leading opponents of the deal. Among other reasons, he argued that it would threaten neutrality. He praised the DOJ's move on Wednesday. "I'm glad the Justice Department recognizes that this merger would hurt consumers, and I hope that the court will agree and block it from moving forward."

Currently, wireless providers appear to be free to engage in certain types of discrimination. Although the FCC voted last year to impose neutrality conditions that ban wireless providers from blocking competing applications or services, the controversial neutrality order doesn't prohibit wireless carriers from engaging in "unreasonable discrimination."

While it's not yet clear how courts will interpret the FCC's order -- which will not take effect until October at the earliest -- the rules appear to leave wireless companies free to forge deals to give certain content preferential treatment.

The FCC is independently reviewing AT&T's proposed buyout of T-Mobile. That agency can attempt to block the merger regardless of how the court rules on the DOJ's antitrust complaint.