The FCC blasted AT&T’s proposed merger with T-Mobile USA in a 111-page report released Tuesday, citing “substantial material questions of fact” about many of AT&T’s claims about the deal’s benefits on jobs, competition and broadband deployment – benefits the Commission ultimately found insufficient to approve the deal.

The Justice Department may use the report as added ammunition in its antitrust case against the deal.

“Significant harms to competition are likely to result, primarily in the form of increased prices for consumers, reduced incentives for innovation and decreased consumer choice,” the FCC wrote in its report, adding that the merger raised “serious allegations of other harms” that needed to be investigated.

“The bulk of the applicants’ proffered benefits are inadequately supported by the data supplied, achievable through means other than the elimination of a competitor or otherwise not cognizable under the Commission’s public interest standard,” the FCC stated.

The results of the agency’s review calls into question AT&T’s plan to expand its LTE network to 97 percent of the U.S. population only if the T-Mobile deal was approved, versus just covering 80 percent of the population if the transaction fell through.

AT&T’s pledge to deploy LTE in remote, underserved areas played a key role in drawing support for the deal from lawmakers and officials representing rural areas of the country.

The FCC judged it likely that AT&T would go with the larger deployment even without the merger to keep pace with competitor Verizon Wireless, which plans to deploy LTE to its entire 3G footprint.

“AT&T is likely to face competitive pressures to deploy LTE widely within its network, and such a deployment would be consistent with the company’s historical practice,” the FCC wrote. “We have serious doubts that the proposed transaction would produce cognizable benefits with regard to LTE coverage.”

The agency’s findings also refuted AT&T’s claim that its acquisition of T-Mobile would result in both efficiencies for its business and more jobs. The FCC’s analysis actually found that the merger would result in a significant net loss of both direct jobs – employees working for AT&T and T-Mobile – and indirect jobs – outside employment generated by AT&T’s investment in its network.

“The proposed transaction will result in a net loss of direct jobs,” the FCC wrote. There would also be a “significant reduction of indirect jobs because of the lower total network investment by the combined entity compared to AT&T and T-Mobile operating as separate competitors.”

AT&T legislative affairs executive Jim Cicconi called the release of the report “improper” and “troubling.”

“The FCC has recognized that it is required by its own rules to dismiss our merger application. This makes all the more troubling their decision to nonetheless release a preliminary staff report on the merger,” Cicconi said. “The draft report has also not been made available to AT&T prior to today, so we have had no opportunity to address or rebut its claims, which makes its release all the more improper.”

The report is slated to be released in conjunction with a draft order to send the transaction to a hearing, but AT&T pulled its application for the deal before the FCC held a vote on the proposal.

Groups opposed to the merger had asked the FCC to block the withdrawal of the application, arguing it allowed AT&T to exploit a procedural loophole to avoid additional scrutiny over the deal.

The FCC allowed AT&T to withdraw its application but decided to release the report in the interest of transparency. The report had been prepared for release before AT&T pulled its application. The situation with the transaction is unprecedented, officials said: Never before has a company withdrawn its application from the FCC while continuing to pursue a merger with the DOJ.

If AT&T is able to reach a settlement with the DOJ, it will have to file a new merger application with the FCC.

Commissioner Michael Copps sounded a warning note about the possibility of a re-submittal.

“I would hope the withdrawal is not a strategic gambit along the road to resubmission of this or a similar application in the months ahead. That would not strike me as a good route to travel,” he said.

Agency Chairman Julius Genachowski took a more diplomatic tack. “Our review of this merger has had a clear focus: fostering a competitive market that drives innovation, promotes investment, encourages job creation and protects consumers. These goals will remain the focus if any future merger application is filed.”