Cellular South joins DOJ to block AT&T's T-Mobile merger

Wireless provider Cellular South has filed suit against AT&T's proposed T-Mobile merger, arguing that the deal should not be approved.

In a complaint filed in the U.S. District Court for the District of Columbia and seen by CNET, Cellular South argues that AT&T's proposed acquisition of T-Mobile USA violates the Clayton Antitrust Act, and, echoing the concerns of other critics, says that the deal would stifle competition in the marketplace.

"The proposed merger will allow AT&T to increase this influence by eliminating T-Mobile as an independent source of demand for wireless devices and an independent roaming partner," Cellular South writes in the complaint it filed yesterday with the court. "The resulting competitive harm will be felt by regional carriers, including Cellular South, who will find it harder to secure both wireless devices at competitive prices and times and nationwide roaming."

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• Justice Dept. to block AT&T's T-Mobile deal
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• AT&T talking to rivals about divestitures, report says

Earlier this year, AT&T announced plans to acquire T-Mobile USA from Deutsche Telekom for $39 billion. Soon after, the firms faced an avalanche of criticism from competitors, lawmakers, and even customers who became concerned that the combined company would hurt competition and consumers.

Chief among the complaints is AT&T's potential size following the acquisition. As Cellular South points out in its complaint, AT&T ended the second quarter of 2011 with over 98.6 million subscribers, while T-Mobile had about 33.6 million customers. With more than 130 million subscribers being served by a single provider, the industry would quickly become a two-player game. Verizon at the end of the second quarter had 106.3 million subscribers, while Sprint had just 51.8 million. All others couldn't even muster 10 million subscribers by the end of the period.

Cellular South is by no means a threat to AT&T's business; the company currently only has 870,000 customers in Mississippi, Tennessee, Alabama, and Florida. However, it's just the kind of company that the federal government is concerned about when it expresses worry about the competitive state of the wireless business in a world where AT&T and T-Mobile USA are combined.

The U.S. Department of Justice last month filed suit in the District of Columbia's district court, arguing that the deal would "substantially lessen competition" in the marketplace. The suit was a major blow to the deal, since the companies need the Justice Department to sign off on the acquisition before it can be approved.

"The combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for mobile wireless services," Deputy Attorney General James M. Cole said in a statement announcing the decision. "Consumers across the country, including those in rural areas and those with lower incomes, benefit from competition among the nation's wireless carriers, particularly the four remaining national carriers. This lawsuit seeks to ensure that everyone can continue to receive the benefits of that competition."

Sprint quickly followed the Justice Department's lawsuit with one of its own, arguing, like Cellular South, that the deal violated the Clayton Antitrust Act, and hurts competition in the marketplace.

"AT&T's proposed takeover of T-Mobile is brazenly anti-competitive," the company said in its court filing. "In one fell swoop, AT&T's proposed purchase would eliminate one of four national competitors and marginalize a second (Sprint), pushing the market back toward a 1980s-style cell phone duopoly that would force consumers to endure higher prices and be denied the fruits of vigorous innovation."

The states have gotten into the mix, too. Last week, attorneys general in California, New York, Pennsylvania, and other states joined the Justice Department's lawsuit to block the merger. New York Attorney General Eric Schneiderman was especially outspoken on the merger, saying that the impact the deal "would have on wireless competition, economic growth, and technological innovation would be enormous."

While all this has gone on, AT&T has been scrambling to save the deal. Just yesterday, Bloomberg reported that AT&T was in negotiations with smaller competitors to divest wireless spectrum and customers to help save its deal. According to that report, MetroPCS and Leap Wireless, which have about 9 million and 7.6 million subscribers, respectively, were the companies AT&T was trying to strike a deal with; however none of the companies were willing to divulge any details about a possible deal.

Regardless, it appears that the battle for the merger is still very much in its infant stages. And it should hit its next phase tomorrow when AT&T and the Justice Department meet in court.

AT&T did not immediately respond to CNET's request for comment.