UPDATED: The merger of the wireless companies was already on the ropes after August when the Justice Department said it would challenge the deal in court on antitrust grounds. Now FCC Chairman Julius Genachowski is circulating a draft order that would add an important additional barrier to the deal: It would ask an administrative law judge to consider whether the combo would serve the public interest — after the end of the Justice trial, due to begin in February. That would significantly delay and complicate the AT&T and T-Mobile’s merger plans. The last time the FCC did this — in 2002 when Echostar wanted to merge with DirecTV — the companies scrapped their plan.

Genachowski’s proposal follows a conclusion by FCC staff that consumers would be harmed if AT&T and T-Mobile merge. “The record clearly shows that — in no uncertain terms — this merger would result in a massive loss of U.S. jobs and investment” as AT&T cuts costs to make the economics of the deal work, a senior FCC official says. The agency found that there’d be less competition in 99 of the 100 biggest markets. (The exception is Omaha.) Staffers also concluded that the deal would not improve deployment of 4G services. If the FCC decides not to approve a merger like this, then it has to send the case to an administrative law judge for a court-like hearing that would look at whether the deal would serve the public interest. The judge’s finding would then go back to the full FCC for a vote.

AT&T says the FCC’s draft order is “yet another example of a government agency acting to prevent billions in new investment and the creation of many thousands of new jobs at a time when the U.S. economy desperately needs both. At this time, we are reviewing all options.” But Dish Network — which has been amassing wireless spectrum in the hope of launching a broadband service — says that the FCC made the right decision. An AT&T-T-Mobile merger would raise “barriers to entry for potential new entrants like Dish Network.” Consumer advocates also applauded the agency. “It means the FCC has found merit in our arguments that a combined AT&T/T-Mobile will create a duopoly in the wireless market (AT&T and Verizon) which will increase prices for service and for handsets,” says Media Access Project Policy Director Andrew Jay Schwartzman. Free Press CEO Craig Aaron says that “the Department of Justice and the FCC both agree that this merger is a bad deal, and it’s time for AT&T to walk away.”
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