US DoJ launches incoherent legal challenge of AT&T Time Warner acquisition

The US Department of Justice has filed an antitrust lawsuit to block the acquisition of Time Warner by AT&T, but its rationale is weak.

“This merger would greatly harm American consumers,” declared Assistant Attorney General Makan Delrahim of the Department’s Antitrust Division. “It would mean higher monthly television bills and fewer of the new, emerging innovative options that consumers are beginning to enjoy.”

“AT&T/DirecTV’s combination with Time Warner is unlawful, and absent an adequate remedy that would fully prevent the harms this merger would cause, the only appropriate action for the Department of Justice is to seek an injunction from a federal judge blocking the entire transaction.”

This position is far from convincing. Since the business model for much of the content owned by Time Warner is for it to be distributed as widely as possible, there would surely be many commercial incentives for AT&T not to price itself out of the market. Furthermore the prospect of a large player throwing its weight around is likely to encourage innovative competition rather than inhibit it.

Delrahim also reckons AT&T could withhold content from other distributors in order to harm them, thus reducing consumer choice further. ‘Indeed, a senior Time Warner executive has stated that they have leverage over an online video distributor, whose offering would be “[expletive] without Turner,”’ stated the DoJ release.

Of course any mega-merger raises competition concerns, but this one was supposed to be OK because it’s ‘vertical’ – i.e. AT&T is buying into another industry rather than snapping up one of its own competitors. Indeed Delrahim himself, prior to his appointment at the DoJ, argued exactly that and opined that there shouldn’t be much objection to this deal in the interview with BNN below.

AT&T, unsurprisingly, thinks this is bullshit. “Today’s DOJ lawsuit is a radical and inexplicable departure from decades of antitrust precedent,” said David McAtee, General Counsel at AT&T. “Vertical mergers like this one are routinely approved because they benefit consumers without removing any competitor from the market. We see no legitimate reason for our merger to be treated differently.

“Our merger combines Time Warner’s content and talent with AT&T’s TV, wireless and broadband distribution platforms. The result will help make television more affordable, innovative, interactive and mobile. Fortunately, the Department of Justice doesn’t have the final say in this matter. Rather, it bears the burden of proving to the U.S. District Court that the transaction violates the law. We are confident that the Court will reject the Government’s claims and permit this merger under longstanding legal precedent.”

This DoJ intervention has been on the cards for at least a couple of weeks, with reports that the divestment of CNN had been requested and declined. This gave AT&T to make a whole website devoted to the matter here, where the BNN interview features prominently along with a bunch of cherry-picked media quotes from the earlier story all, inevitably questioning the DoJ move. It’s almost as if AT&T fed that story to the press just to get those quotes.

A lot of the commentary around this has focused on US President Donald Trump, who seems to despise all media but reserves special loathing for Time Warner-owned CNN. You can see a recent tweet of his on the news channel below and it’s hard to resist the suspicion that he may have leant on the DoJ over this decision.

So now this moves to the courts in what could be a momentous decision for establishing vertical M&A precedent. The fact that Comcast was allowed to acquire NBC Universal is a precedent in AT&T’s favour but then again any anticompetitive behaviour from it subsequently could work in the opposite direction, and the US climate may be more hostile to mega-mergers than it was then. Further collateral damage could also be done to internet giants such as Google, Amazon and Facebook if the ruling calls the ownership of both content and distribution into question on antitrust grounds, so this will be a closely-watched case across many industries.