By Josh Ong

Published: 02:35 AM EST (11:35 PM PST)

A recently filed antitrust lawsuit by the U.S. Department of Justice opposing AT&T's proposed acquisition of T-Mobile USA took executives by surprise, as they thought they would have more time to present their case, according to a new report.

AT&T CEO Randall Stephenson said in a television interview early Wednesday that he expected the $39 billion transaction to go through in the first quarter of 2012, but the Justice Department called his lawyers an hour later notifying them that the federal agency was suing to block the merger, Bloomberg reports.

“We are deep into the analysis with the Department of Justice, and it’s all the questions and data gathering you might expect,” Stephenson had said in the interview.

The suit came just a day after a Justice Department meeting to discuss the matter. According to people involved in the meeting, AT&T believed it would have "more time to present ideas that would assuage the government's reservations about the deal."

Insiders indicated that the DoJ had decided that the two companies weren't responding to concerns that the acquisition would hurt competition and result in higher prices for consumers. One source said skepticism at the agency had been mounting for weeks after a technical review of the U.S. wireless market found the deal to be "highly anticompetitive."

AT&T announced the $39 billion deal in March. As the biggest deal of the year, the merger quickly came under scrutiny from the Federal Communications Commission and the Department of Justice. From the outset, the company has reportedly faced a "steep climb" on its way to receiving approval for the transaction.

Tuesday's DoJ meeting brought together more than 40 people, including "representatives of AT&T, T-Mobile, a unit of Bonn-based Deutsche Telekom AG (DTE), the Justice Department and the Pennsylvania attorney general." Officials from several state attorneys generals' offices, including California and New York, reportedly participated by phone. Part of the reason AT&T was caught unawares by the antitrust suit was because Justice Department lawyers had asked "thoughtful rather than confrontational" questions during the meeting, sources said.

After hearing the companies argue in favor of the merger, Sharis Pozen, the acting chief of the antitrust division, voiced concerns that the deal "would leave local and national wireless markets to concentrated." She also worried that dropping to just three major wireless players would have a negative effect.

But Stephenson and his lawyers did not expect Pozen's concerns to materialize into a lawsuit the following day. “The news caught everybody by surprise,” said Steve Largent, CEO of CTIA-The Wireless Association. “AT&T was in the middle of explaining and detailing the merger that was being proposed when the Justice Department filed."

Pozen said Wednesday that she had repeatedly informed AT&T of the agency's issues with the deal. “We have been in constant dialogue with the parties, exploring their arguments, exploring the materials they have provided, asking questions, engaging fully with them,” she said, offering a glimmer of open by adding that the DoJ's "door is open" for further discussion.

But the department's decisive action with the lawsuit does not portend well for AT&T, which would may have to pay as much as $6 billion in break-up fees to T-Mobile parent company Deutsche Telekom if the deal fell through.

“It is true that you can always settle a case, but the Justice Department doesn’t use litigation as a settlement tactic,” said Harold Feld, the legal director of a consumer group opposing the deal. “This merger creates dangerous levels of concentration in 97 of the top 100 markets-- there isn’t a cure for that. It’s not like you can sell Chatanooga and give up a few licenses in Milwaukee,” he said.

Last month, sources suggested that AT&T is reportedly considering selling off $8 billion in assets as concessions to make the deal happen. According to Reuters, the company's back-up plan may include selling off as much as 25 percent of T-Mobile's assets to make the arrangement more palatable for antitrust officials.