AT&T Inc.'s proposed $39 billion purchase of T-Mobile USA Inc. should be rejected because it will lead to higher prices for consumers, the public-interest group Consumer Watchdog told regulators.

“T-Mobile customers who are forced to migrate to AT&T’s network will have to buy new phones, agree to more expensive rate plans or cancel their contracts and pay a termination fee,” the Santa Monica, California-based group said in a letter. “Once known for its low prices, T-Mobile has already begun increasing its rates and decreasing options in anticipation of the merger,” Consumer Watchdog said.

The letter was addressed to Chairman Julius Genachowski of the Federal Communications Commission, U.S. Attorney General Eric Holder and Commissioner Catherine J.K. Sandoval of the California Public Utilities Commission.

AT&T spokesman Michael Balmoris said the letter is “riddled with distortions and factual inaccuracies.”

“Contrary to the letter’s claims, prices for wireless services have declined sharply in recent years including since the Cingular-AT&T wireless merger, as confirmed by a Government Accounting Office report showing that wireless voice prices have declined 50 percent over a 10-year period,” Balmoris said today by e-mail.

The market is “fiercely competitive” and will remain so after the merger, the company says on its website.

New No. 1

The acquisition from Deutsche Telekom AG (DTE) would unite the second- and fourth-largest carriers to create a new market leader, ahead of No. 1 Verizon Wireless, owned by Verizon Communications Inc. (VZ) and Vodafone Group Plc. (VOD) The FCC and the Justice Department are vetting the deal, proposed March 20, in a review that AT&T executives said will take about a year.

AT&T’s promises of improved service echo those made by the company when it promised lower prices and better service before merging with Cingular Wireless LLC in 2004 in a $41 billion transaction, Harvey Rosenfield, Consumer Watchdog’s founder, said in a telephone interview.

“They betrayed those promises after that merger was approved,” Rosenfield said. “We calculated that the average person who was overcharged was out several hundred dollars.”

The company degraded the old AT&T network and forced AT&T customers to buy new phones and costlier plans or be slapped with large termination fees, Rosenfield said.

Consumer Watchdog is fighting a class-action lawsuit against AT&T it filed in 2006 seeking refunds for AT&T’s customers.

‘Repeat Performance’

“Nothing in the terms of the proposed merger bars AT&T from engaging in a repeat performance against helpless T-Mobile customers if this deal is approved,” Consumer Watchdog said in the letter. AT&T is again promising improved service quality, fewer dropped calls, better access for rural customers, and better voice and data services as it did in 2004, the group said.

“How can public officials even contemplate approving AT&T’s purchase of T-Mobile when AT&T still hasn’t paid back its customers for the huge fees and other illegal overcharges it forced people to pay when it broke its promises after the merger with Cingular back in 2004?” said Rosenfield, one of the lawyers prosecuting the suit over the AT&T-Cingular merger.

That case, Coneff v. AT&T Corp., is before the federal appeals court in San Francisco.

“Contrary to the letter’s claims, T-Mobile consumers will be able to keep their rate plans for as long as they want to, even when upgrading to a comparable device, once the merger is completed,” AT&T’s Balmoris said in today’s e-mail.

Better Service

The change will bring improved service, jobs and economic benefits to “tens of millions of consumers across the country,” he said.

“After the acquisition closes, customers’ voice and data experience will improve as the networks combine and AT&T builds out its LTE network,” Hernan Daguerre, a T-Mobile USA spokesman, said today in an e-mail message, referring to the AT&T long-term evolution technology.

T-Mobile introduced its most affordable voice, text and data plans to date July 24, Daguerre said. The new plans include pricing and service options and allow consumers to continue to use mobile data on smartphones at reduced speeds after they reach certain caps to avoid overage charges, he said.

Consumer Watchdog is one of almost 145 opponents to the merger that include telecommunications rivals and consumer groups.

Supporting Voices

The Communications Workers of America, the International Association of Teamsters and the AFL-CIO, joined by some minority groups, have endorsed the deal. Balmoris said it’s backed by more than 80 U.S. House members, 26 governors, 92 mayors and 11 state attorneys general.

Senators Herbert H. Kohl of Wisconsin and Al Franken of Minnesota, both Democrats, last month urged the FCC and the Justice Department to block the transaction.

Lamar S. Smith, a Texas Republican who chairs the U.S. House of Representatives Judiciary Committee, said in a letter to federal regulators Aug. 2 that the transaction has benefits that should be carefully considered by authorities.

To contact the reporter on this story: Sara Forden in Washington at [email protected].

To contact the editor responsible for this story: Michael Hytha at [email protected].