UPDATE 1 [Wednesday, August 31, 2011 at 12:17pm EST]:AT&T has provided us with the official line regarding this development, found at the bottom of this article.

Bloomberg reports that the U.S. government has made a move to block the proposed merger of AT&T and T-Mobile USA valued at $39 billion:

The U.S. government sued to block AT&T Inc.’s proposed $39 billion acquisition of T-Mobile USA Inc., saying the deal would “substantially lessen competition” in the wireless market.

The publication writes that the Justice Department filed a complaint Wednesday in federal court in Washington. The government is arguing that the proposed transaction would effectively legitimize duopoly in the country, adding in its filing that “AT&T’s elimination of T-Mobile as an independent, low- priced rival would remove a significant competitive force from the market”.

The government’s reasoning resonates with Sprint, the nation’s third-largest wireless operator, which asked Uncle Sam to intervene on the grounds that the resulting super carrier would prevent any meaningful competition on the market. AT&T denied Sprint’s accusations and said the merger would lead to fewer dropped calls and cheaper data plans for customers.

This is my next has a statement from FCC chairman Julius Genachowski who expressed “serious concerns” about competition:

By filing suit today, the Department of Justice has concluded that AT&T’s acquisition of T-Mobile would substantially lessen competition in violation of the antitrust laws. Competition is an essential component of the FCC’s statutory public interest analysis, and although our process is not complete, the record before this agency also raises serious concerns about the impact of the proposed transaction on competition. Vibrant competition in wireless services is vital to innovation, investment, economic growth and job creation, and to drive our global leadership in mobile. Competition fosters consumer benefits, including more choices, better service and lower prices.

If the transaction does indeed get rejected, T-Mobile USA will walk out with…

…first, three billion dollars in cash in its pockets, which is the sum AT&T pledged to pay if regulators reject the transaction. Then there are reduced charges T-Mobile USA would get for calls that get tunneled through the AT&T network. Finally, Deutsche Telekom-owned carrier, the fourth largest in the U.S., would also enjoy AT&T’s wireless spectrum in some regions, resulting in better coverage for users on the T-Mobile network.

And here’s that comment from Wayne Watts, AT&T’s senior executive vice president and general counsel:

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.

We plan to ask for an expedited hearing so the enormous benefits of this merger can be fully reviewed. The DOJ has the burden of proving alleged anti-competitive affects and we intend to vigorously contest this matter in court.

At the end of the day, we believe facts will guide any final decision and the facts are clear. This merger will: Help solve our nation’s spectrum exhaust situation and improve wireless service for millions; allow AT&T to expand 4G LTE mobile broadband to another 55 million Americans, or 97% of the population; result in billions of additional investment and tens of thousands of jobs, at a time when our nation needs them most. We remain confident that this merger is in the best interest of consumers and our country, and the facts will prevail in court.

Cross-posted on 9to5Google.com

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