US court rules class action against AT&T can go on

* Class action on Cingular/AT&T deal allowed to proceed

* Customers say being forced to pay fees, buy phones.

NEW YORK, May 27 (Reuters) - A U.S. District Court ruled on Wednesday that consumers can go ahead with a class action lawsuit against AT&T Inc (T.N) that stems from the 2004 merger of Cingular Wireless and AT&T Wireless.

The case arose from complaints from customers after the merger that they were being forced to pay fees and buy new phones to transfer their service plan from the AT&T Wireless network to Cingular, now operating under the AT&T brand.

AT&T argued customers should channel their complaints through individual arbitration rather than class actions, but a U.S. District Court for the Western District of Washington in Seattle ruled against the company on Wednesday, allowing a class action to go ahead.

AT&T representatives confirmed the ruling by Judge Ricardo Martinez and said in an emailed statement the company was studying the ruling and considering its options.

"We respectfully disagree with the court's conclusions," the company said. "Our arbitration clause is among the most consumer-friendly in the nation and has been shown to be very consumer friendly in other cases."

The lawsuit MaryGrace A. Coneff, et al versus AT&T said Cingular "deliberately degraded" the AT&T network to induce AT&T Wireless customers to transfer their service to Cingular.

But a transfer came with obligations including an $18 transfer fee to Cingular and the purchase of a new phone from Cingular. Customers who did not accept the transfer fee had to put up with a degraded service until the end of their service contract or pay a $175 early termination fee.