An action by the Federal Communications Commission threatens to sink AT&T's proposed $39 billion acquisition of T-Mobile. FCC Chairman Julius Genachowski is reportedly circulating a draft order to his fellow commissioners that would have the FCC refer the case to an administrative law judge, and require AT&T to prove the deal is in the public interest.

Although referring a case elsewhere doesn't sound all that serious, the Wall Street Journal noted that it is actually a rare move that makes AT&T's path more difficult. "The last time the agency did this was in 2002 on the proposed merger of EchoStar and DirecTV," the Journal wrote. "The companies eventually pulled the deal."

FCC officials explained their concerns in a press conference. According to GigaOm's summary, "FCC lawyers found the merger would kill jobs, rather than create them, that the sum of the two operators’ 4G wouldn’t be greater than the parts, and that a merged AT&T-Mo would likely stifle wireless competition in 99 of the 100 largest markets—basically every major city but Omaha, Neb."

AT&T did not like today's action. "It 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 US economy desperately needs both," the company said in a statement. "At this time, we are reviewing all options." But the FCC isn't AT&T's only problem. The Department of Justice filed a federal antitrust lawsuit to block the acquisition several months ago, saying it would lead to higher prices, fewer choices and lower-quality products.

Sprint cheered today's decision, and so did Internet and telecommunications advocacy group Public Knowledge. "This is a significant setback for AT&T—most mergers that reach this stage end up failing," the group said. "This isn't the last step at the FCC, because the full Commission still needs to vote on the order, and then AT&T can either press its case before an Administrative Law Judge or simply withdraw its application. But's it's an important step and a victory for the public interest."