AT&T's decision to drop its $39 billion planned purchase of smaller rival T-Mobile USA is being cheered by consumer groups and government officials, who say more - not less - competition in the cell phone business is needed.

"[This] is good news for consumers," Parul Desai, policy counsel for Consumers Union, told ABCNews. "It keeps four competitors in the market rather than allowing the wireless industry to move towards a "duopoly.'"

"As you move towards duopoly, there is less choice and ultimately higher prices for consumers," she added.

AT&T decided to pull its plans for the purchase after objections from the Department of Justice and the Federal Communications Commission on competitive grounds.  Deutsche Telekom, the owner of  T-Mobile, will get a $3 billion break-up fee and $1 billion worth of airwaves from AT&T, the second-largest US carrier behind Verizon Wireless.

"The FCC is committed to ensuring a competitive mobile marketplace that drives innovation and investment, creates jobs and benefits consumers," FCC chairman Julius Genachowski said in a statement.

"This deal would have done the opposite. The U.S. mobile industry leads the world in mobile innovation, and we agree with AT&T that Congress should pass incentive auction legislation that will unleash new spectrum for mobile broadband," said Genachowski.

In April, Consumer Reports did an analysis that discovered T-Mobile customers typically pay  $15 to $50 less each month for comparable plans. For a year, or 12 months, that's a savings of $600.

The attorney general's office called the decision to keep a low-cost competitor in the market a victory for Americans.

"This result is a victory for the millions of Americans who use mobile wireless telecommunications services," Deputy U.S. Attorney General James Cole said, according to the  Associated Press. "A significant competitor remains in the marketplace and consumers will benefit from a quick resolution."

When it comes to prices, AT&T and Verizon don't compete, said Desai. "If you knock out a low-cost competitor there is no incentive for  [AT&T and Verizon] to lower prices, and it makes it harder for the third company to compete," said Desai.

Sprint-Nextel, a competitor, and the company likely to suffer the most from the merger, applauded the FCC and the DOJ. In statement, Vonya McCann stated, "We look forward to competing fiercely in the robust, competitive market that exists today and continuing to deliver the world class service and products that consumers have come to expect from Sprint."