Justice Department Reviews Telco Practices

(Updated with comment from AT&T)

The massive consolidation of the telecom industry has attracted the attention of the Justice Department.

Antitrust regulators have started an informal inquiry into the potentially anticompetitive practices of an industry dominated by a few major players, according to The Wall Street Journal.

AT&T (T Quote), Verizon (VZ Quote) and Sprint (S Quote) spent the better part of this decade pulling together other telcos like MCI, Alltel, Nextel, Cingular, AT&T Wireless, SBC, BellSouth, etc.

Now, the Justice Department is wondering whether the subsequent cartel of carriers has curbed competition and innovation while using unchallenged market power to control pricing and selection.

The early-stage investigation stems from a prior inquiry into whether the wireless telcos were unfairly locking up exclusive phone sales agreements with outfits like Apple (AAPL Quote), Palm (PALM Quote) and Research In Motion (RIMM Quote).

Among the challenges for regulators will be to balance the argument against the telco duopoly of AT&T and Verizon, with the consumer-friendly pricing of triple play service bundles used to compete against cable companies.

The inquiry -- under President Obama's new Justice chief Christine Varney -- would presumably attempt to examine some of the competitive impacts of mergers that went unchallenged during the Bush administration.

"We are not aware of any formal investigation, nor have they asked us to provide any information," said an AT&T representative when contacted by TheStreet.com. Verizon was not unavailable for immediate comment.