staff and news service reports
updated 12/19/2011 5:59:15 PM ET 2011-12-19T22:59:15

AT&T is ending its $39 billion bid to buy T-Mobile USA, citing fierce government objections.

The Justice Department sued to block the merger Aug. 31, saying it would reduce competition and lead to higher prices.

Executives of the two wireless giants disagreed, but last month they took a step toward terminating the deal when they withdrew their application to the Federal Communications Commission after its chairman also opposed the merger.

AT&T maintained Monday that the wireless phone industry requires more airwave space to expand.

"The AT&T and T-Mobile USA combination would have offered an interim solution to this spectrum shortage," the company said in a news release. "In the absence of such steps, customers will be harmed and needed investment will be stifled."

AT&T's purchase of T-Mobile from Deutsche Telekom of Germany would have made it the largest cellphone company in the United States. AT&T is the country's second-largest wireless carrier, while T-Mobile is the fourth-largest.

The decision was hailed by consumer advocates, who had warned that the merger would concentrate too much power in the hands of a single carrier.

"From the first day that this deal was announced, we have warned regulators, lawmakers, and consumers of the dangerous consequences of this merger," said Parul P. Desai, policy counsel for Consumers Union, according to its website The Consumerist. "Regulators clearly saw through AT&T's claims of better service and saw what we saw - a combined AT&T/T-Mobile would mean higher prices and fewer choices for consumers. It would mean a wireless market dominated by a powerful duopoly with little incentive to compete with other carriers."

The termination of the merger agreement will be a costly one for AT&T, which will take a pretax accounting charge of $4 billion in the current quarter to reflect a breakup fee it agreed to pay Deutsche Telekom.

“AT&T will continue to be aggressive in leading the mobile Internet revolution,” Randall Stephenson, AT&T chairman and CEO, said in the news release. But he called on government policymakers to make more spectrum available.

“The mobile Internet is a dynamic industry that can be a critical driver in restoring American economic growth and job creation, but only if companies are allowed to react quickly to customer needs and market forces,” he said.

Failure of the deal leaves U.S. consumers with four main options for cell phone service: AT&T, Verizon, Sprint and T-Mobile.

But long-term prospects for T-Mobile are uncertain. The company's German parent has expressed a desire to exit the U.S. market. Unlike the other major carriers, T-Mobile is not building out its own high-speed, next generation wireless network.

The Associated Press contributed to this report.

Video: AT&T drops bid for T-Mobile

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