The US Department of Justice has challenged AT&T’s proposed merger with T-Mobile USA, arguing that the merger would hurt competition and throw many employees out of jobs.

Currently, AT&T is the second largest mobile phone carrier in the country, and its merger with the fourth largest carrier T-Mobile USA would allow it to surpass Verizon Wireless to become the number 1 carrier.

The Justice department said that the $39-billion merger would lead to higher prices by slashing the number of options for consumers.

Sharis A. Pozen, assistant attorney general in-charge of the antitrust division, said,”Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer.”

However, T-Mobile USA’s German parent firm, Deutsche Telekom, said that the Justice Department failed to acknowledge that the US wireless telecommunications industry is strongly competitive.

If the deal is eventually blocked, Kansas-based rival carrier Sprint will benefit, which has been appealing the regulators to block the deal claiming it would hurt competition.

Shares in Sprint jumped 21 cents to $3.76 yesterday on the New York Stock Exchange.