California may review AT&T/T-Mobile USA deal

A view shows the AT&T store sign in Broomfield, Colorado April 20, 2011.

NEW YORK (Reuters) - California regulators may open a formal examination of AT&T Inc's proposed $39 billion purchase of T-Mobile USA, a move that could delay or add conditions to approval of the deal.

If successful, the deal would create the largest U.S. mobile phone service.

To complete the deal, which many consumers and rivals including Sprint Nextel are opposing, AT&T needs approval from the U.S. Department of Justice and the U.S. Federal Communications Commission, the telecommunications regulator. State regulators can block a merger within their state.

The California Public Utilities Commission told its staff, in a meeting on Thursday, to open a proceeding to gather information about the merger for the state regulator to consider at its next voting meeting on June 9.

The commission said it wants information about the merger proposal "in light of relevant state law and public policies."

State regulators can block a merger but more typically, they tend to impose conditions for approval that are specific to the needs of that state, experts said.

Because California is such a large state, a rejection there "would sabotage the deal to a large extent," according to Bert Foer, head of the American Antitrust Institute but he added that it was more typical for states to negotiate with the federal regulators.

State reviews could also affect the timing of a deal as a merger would not close until all the reviews were competed, according Stifel Nicolaus analyst Rebecca Arbogast.

AT&T has notified California, Arizona, Hawaii, West Virginia and Louisiana about the deal. Louisiana has already said it would investigate. Sprint had asked West Virginia, California and Louisiana to review the deal.

Sprint and Leap Wireless say the deal would make the U.S. wireless industry less competitive while consumers have told the FCC that they are worried the deal will result in higher prices.

AT&T has argued that the acquisition of T-Mobile USA, a unit of Deutsche Telekom, would help it to provide a better service by allowing it to expand its network in states like California more quickly than it could have otherwise.

AT&T notified the California commission about the proposed deal on May 3 and the deal would have been deemed approved if the regulator had taken no action 30 days later.

Lane Kasselman, a spokesman for AT&T said the company

is "confident in the merits of this deal and that regulatory approvals will be obtained" after the reviews.

The top executives from AT&T, T-Mobile USA and Deutsche Telekom have defended the deal at Senate and House hearings where Republicans and Democrats expressed skepticism about the benefits of the deal to consumers.

(Reporting by Sinead Carew in New York, Diane Bartz in

Washington and Poormina Gupta in San Francisco; editing by Derek Caney)