U.S. moves to block AT&T, T-Mobile deal (Reuters)

WASHINGTON/NEW YORK (Reuters) – The U.S. government sued to block AT&T's $39 billion deal to buy T-Mobile USA because of anti-competition concerns, launching the biggest challenge to a takeover by the Obama administration.

A failed deal would be expensive for AT&T, which plans to fight the government's decision in court. It promised to pay a breakup fee worth an estimated $6 billion, including $3 billion in cash, spectrum and a roaming agreement for T-Mobile USA.

The Justice Department, in a lawsuit filed on Wednesday, said eliminating T-Mobile as a competitor would be disastrous for consumers and would raise prices, particularly because the smaller provider offers low prices.

"Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer," said Sharis Pozen, acting head of the Justice Department's antitrust division.

AT&T will fight the decision in court, said company lawyer Wayne Watts, who added that the Justice Department had given the company no indication that it was contemplating such a move.

The company has argued the deal would let it add capacity and meet demand for high-speed wireless service.

"Clearly AT&T didn't expect this," said Pacific Crest Securities analyst Steve Clement. "It changes things for them with respect to the spectrum flexibility they'd have. They're going to have to be in the market to buy incremental spectrum."

The deal falling through might prompt Sprint Nextel Corp, the smallest of the top three U.S. carriers, to consider buying T-Mobile, a unit of Germany's Deutsche Telekom AG, he added.

AT&T shares fell $1.26, or more than 4 percent, to $28.35. Stock in rival Sprint rose 9 percent to $3.85.

BIGGEST CHALLENGE

The deal also would need the approval of the Federal Communications Commission, which regulates wireless telecommunications. On Wednesday, FCC Chairman Julius Genachowski said he is concerned about the deal's impact on competition.

The lawsuit is the biggest challenge to a takeover by the Obama administration, which includes former AT&T executive William Daley as Commerce Secretary.

"It's mixed for Sprint. On the one hand, they were potentially going to lose T-Mobile USA as a competitor at the low end of the market," Clement said. "Now it's going to face a T-Mobile that's in a better position prior to the merger proposal, with extra cash and spectrum and a new roaming agreement with AT&T." (Additional reporting by Diane Bartz in Washington and Nadia Damouni in New York. Writing by Edwin Chan. Editing by Robert MacMillan)

(This story corrects eighth paragraph to show Sprint might consider buying T-Mobile, not Deutsche)

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Taxes still a stumbling block in debt talks (Reuters)

WASHINGTON (Reuters) – After months of effort, President Barack Obama and congressional Republicans are right back where they started as they try to avert a looming debt default: arguing over taxes.

With a "grand bargain" to tame the national debt seemingly off the table, Obama, House of Representatives Speaker John Boehner and other leaders will try for a more modest deal when they resume discussions at the White House Monday afternoon.

But negotiators will have to confront a divide over taxes that has prevented them from reaching a deal so far. Democrats say new tax revenues need to be part of the equation, while Republicans say they won't back any increase in taxes.

A highly anticipated Sunday meeting broke little new ground. Obama and his fellow Democrats repeated the need for a "balanced" approach, while Republicans restated their position that tax increases would further burden the already shaky economy. Senate Democratic Leader Harry Reid lectured Republicans for backing away from tough decisions, sources said, while Boehner was largely silent.

A source familiar with the meeting described it as a "frank exchange of views" -- Washington-speak for "acrimonious."

The post-meeting rhetoric seemed to bear this out.

"It's baffling that the President and his party continue to insist on massive tax hikes in the middle of a jobs crisis," said Don Stewart, a spokesman for Senate Republican Leader Mitch McConnell.

Reid's spokesman, Adam Jentleson, said: "The stakes are too high for Republicans to keep taking the easy way out."

Time is running short to break the impasse.

The Treasury Department has warned that it will run out of money to cover the country's bills if Congress does not raise the $14.3 trillion debt limit by August 2. Failure to do so could push the country back into recession, send shock waves through global markets and threaten the dollar's reserve status.

The real deadline is even closer. Participants say a deal should be in place July 22 to ensure Congress has time to act. Obama told lawmakers to be ready to meet every day this week.

But Senator Jim DeMint, a Republican aligned with the fiscally conservative Tea Party movement, said the threat of default was overblown.

"We're not going to default. We've got enough tax revenue to pay our bills," DeMint told NBC's "Today Show" on Monday.

"We don't need to panic and rush into a deal," he added.

If White House talks produce no plan this week, DeMint said Republicans would introduce a bill to raise the debt ceiling in exchange for "reasonable" spending cuts, caps and movement toward a balanced budget amendment.

TAXES SCUTTLE 'GRAND BARGAIN' AND SMALLER DEAL

Aides to Boehner and Obama had spent much of the past week discussing an ambitious budget deal that would have reformed the tax code and popular social spending programs and scaled back annual defense and domestic spending.

The goal was the $4 trillion in budget savings, measured over 10 years, that budget experts say is needed to keep the national debt at a sustainable level.

Obama wanted between $1.3 trillion and $1.7 trillion of that total to come from new tax revenue, according to a Republican source. That would have come in part by allowing the current lowered tax rate for the highest earners to rise back to its 1990s levels in 2013, while keeping the lower rates in place for middle- and low-income earners.

Republicans felt that what Democrats offered in return -- a promise to lower tax rates across the board while closing a range of tax breaks -- was not enough.

On Sunday, Obama and other Democrats pressed for the "grand bargain" but Republicans said they wanted a smaller deal.

With savings of around $2 trillion, that would cover the nation's borrowing needs through the November 2012 elections.

Many elements of that deal have already been hammered out in talks led by Vice President Joe Biden, but taxes proved to be a stumbling block in those sessions as well.

Representative Eric Cantor, the No. 2 House Republican, walked out June 23 after Democrats insisted on closing $400 billion worth of tax breaks that largely benefit the wealthy.

There could be a way out.

Last week, Cantor said he could support closing some tax breaks if they were offset with tax cuts elsewhere.

Democrats have proposed a range of tax cuts to boost the economy, including an extension of the current payroll tax cut and a permanent credit for research and development costs.

That approach would allow both sides to declare victory -- Republicans would get a deal that doesn't raise taxes overall, and Democrats could say they raised taxes on the rich and helped bring down the 9.2 percent unemployment rate.

(Additional reporting by David Morgan; Editing by Eric Beech)

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Groups sue to block Ala. illegal immigration law (AP)

MONTGOMERY, Ala. – Civil rights groups sued Friday in federal court to block Alabama's new law cracking down on illegal immigration, which supporters and opponents have called the strictest measure of its kind in the nation.

The lawsuit, filed in Huntsville, said the law is of "unprecedented reach" and goes beyond similar laws passed in Arizona, Utah, Indiana and Georgia. Federal judges already have blocked all or parts of the laws in those states. It asks a judge to declare Alabama's law unconstitutional and prevent it from being enforced.

Alabama's law, which takes effect Sept. 1, allows police to arrest anyone suspected of being an illegal immigrant if the person is stopped for some other reason. It also requires businesses to check the legal status of new workers and requires schools to report the immigration status of students.

Matthew Webster was among the individuals who joined the lawsuit as plaintiffs. He and his wife, who live in the community of Alabaster south of Birmingham, are in the process of adopting two boys who are already in the country illegally. Webster, who described himself as politically conservative, said he feared the boys could face deportation under the new law before the adoption process is done and the boys are in the U.S. legally.

He said the boys "have the fear of being picked up" even walking to school.

"This criminalizes me and my wife for harboring and transporting these kids," he said.

The lawsuit said the new law will subject Alabama residents, including U.S. citizens and non-citizens who are in the country legally, to racial profiling. The law also recalls memories of Alabama's troubled segregationist past by making life more difficult for a targeted class of people, according to the lawsuit.

"Individuals who may be perceived as `foreign' by state or local law enforcement agents will be in constant jeopardy of harassment and unlawfully prolonged detention by state law enforcement officers," the lawsuit said.

Parents may not enroll their children in elementary and high schools because of the law's provision requiring schools to check the immigration status of students, the groups said in the lawsuit. Lawmakers have said that the intent of that requirement is to gauge how much the state is spending to educate illegal immigrants, and that the law does not prohibit illegal immigrants from attending public schools.

Alabama's law also makes it a crime to knowingly give a ride to an illegal immigrant and for landlords to knowingly rent to illegal immigrants.

The lawsuit was filed by various organizations across northern Alabama that represent immigrant groups as well as individual immigrants who are listed under the pseudonyms John Doe and Jane Doe. The lawsuit names as defendants various state and local officials, including Republican Gov. Robert Bentley, Attorney General Luther Strange and state schools Superintendent Joe Morton.

Supporters of the new law, including Bentley, have predicted it would withstand any legal challenges.

The law was written so that if any provisions are found to be unconstitutional, other parts of the law can remain in effect.

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Greek rebel lawmakers may block austerity: deputy PM (Reuters)

ATHENS (Reuters) – Greece's deputy prime minister warned on Sunday that rebel lawmakers may block some reforms sought by international lenders, though parliament will probably back an overall austerity package this week to avert national bankruptcy.

Adding to Socialist Prime Minister George Papandreou's dire problems, the conservative opposition rejected appeals from the government and senior European Union politicians to vote in favor of the five-year plan.

Parliament is due to start debating on Monday the programme of tax increases and spending cuts worth 28 billion euros. Papandreou needs parliamentary approval this week to secure the next payment under a 110-billion euro EU/IMF bailout.

Deputy Prime Minister Theodore Pangalos told Spanish newspaper El Mundo he was optimistic about overcoming discontent in his PASOK party to win a first round of general votes on tax and spending targets and the creation of a privatisation agency.

But he was more cautious about whether the government could push through further enabling legislation on individual budget measures and privatisation of specific state assets.

"I think the package of short and medium-term measures with which we basically hope to establish the framework to undertake reforms will be approved without difficulty," Pangalos told the newspaper in the interview published on Sunday.

Approval of specific laws to enact painful fiscal reforms and privatisations may be more difficult to achieve, he said.

"That's where we may have problems. I don't know whether some of our legislators will vote against it. It's possible."

Without the next 12-billion euro tranche of funding from the IMF and European Union, Greece faces the prospect next month of becoming the first euro zone country to default, sending shockwaves through a fragile global financial system.

But many Greeks who have lost jobs or seen their real income decline by nearly one-fifth over the last two years have reacted angrily to measures they say fail to target wealthy tax evaders whom they regard as responsible for Greece's plight.

Papandreou's PASOK party has seen its slender majority whittled down by five defections over the last 13 months, leaving it with 155 seats in the 300-member parliament.

In a rare piece of good news for Papandreou, one of the two PASOK legislators who announced they would vote against the package appeared to be wavering on Sunday after holding talks with Finance Minister Evangelos Venizelos at the weekend.

"One moment I veer toward a 'no', the other toward a 'yes'. I will make a last-minute-decision," Thomas Robopoulos told Reuters. A third Socialist MP has said he will support the deal only if Venizelos gives him assurances on certain measures.

NATIONAL STRIKE

With Greece unable to return to international bond markets next year, as foreseen under its EU/IMF programme, European leaders are working on a new bailout of a similar size, including a contribution from private sector banks which would agree to a "voluntary" rollover of their holdings of Greek debt.

Euro group president Jean-Claude Juncker, the prime minister of Luxembourg, said on Sunday that the size of this private sector contribution would be discussed at a euro zone finance ministers' meeting in early July.

Ramping up pressure on the government, unions have called a two-day national strike from Tuesday. Many companies, including the main electricity group PPC which is slated for partial privatisation next year, have started rolling stoppages.

Pangalos, who after a cabinet reshuffle this month shares his deputy premier's title with Venizelos, said he believed the conservative opposition would vote in favor of some measures.

But New Democracy leader Antonis Samaras turned a deaf ear to the appeals from home and abroad to support the package, saying the painful measures would only deepen Greece's worst recession in 37 years.

"You can't ask for more taxes in an already overtaxed country, in a market that has been sucked dry, with economic activity at zero and a huge recession," he said in a statement.

Greek ministers and policymakers had urged legislators to approve the austerity package, adding to calls from European leaders to avoid a crisis in the 17-member euro zone.

German Finance Minister Wolfgang Schaeuble urged the Greek parliament to approve the measures, warning that the EU would not relax this condition for disbursing the next aid tranche.

"The stability of the entire euro zone would be in danger and we would need to quickly ensure that the risk of contagion for the financial system and other euro area countries would be contained," he told German Sunday newspaper Bild am Sonntag.

Venizelos, a Socialist party baron given the finance portfolio in the cabinet reshuffle, clinched the agreement of EU and IMF inspectors on Thursday to a raft of measures which he hopes can put government finances back on an even keel after it failed to meet targets under its international programme.

The steps include a one-off solidarity levy on income, a rise in heating fuel tax and the introduction of income tax even for low earners on wages of 8,000 to 12,000 euros a year.

A peaceful crowd of around 1,000 people gathered on Sunday in Syntagma square outside parliament, which was protected by a line of riot police.

With youth unemployment running at around 40 percent, many of those who have taken to the streets in protest or camped in Syntagma over the last month are young people who fear the measures will worsen their dim economic prospects.

"The choice is not between voting for the measures or defaulting, but between economic and social bankruptcy on the one hand and growth and social cohesion on the other," said the Left Coalition, a small opposition party, in a statement.

(Additional reporting by Tracy Rucinski in Madrid; editing by Ralph Boulton)

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