The Department of Justice is suing to block AT&T’s $85 billion bid for entertainment conglomerate Time Warner, setting the stage for one of the biggest antitrust cases to hit Washington in decades.
The suit is fraught with legal and political risks for both sides. Several Democrats have expressed concern that antitrust officials could be seeking to block the deal because the Trump administration has been highly critical of CNN, which is owned by Time Warner — a charge that the White House and Justice Department have denied.
The suit, which AT&T said was filed by the Justice Department’s antitrust division, seeks to prevent a deal that would combine AT&T — already one of the country’s largest providers of internet and subscription television — with Time Warner’s enormous library of films, HBO, live TV programming and other content.
“It may be one of the most important antitrust battles of modern times,” said Gene Kimmelman, a former federal antitrust official and the president of Public Knowledge, a consumer advocacy group.
The move by the agency is also unusual because the proposed tie-up would combine two different kinds of companies — a telecom with a media and entertainment firm. Antitrust officials are relatively untested in the courts on opposing mergers of this kind. But skeptics of the deal have argued that if it is approved, AT&T could use its immense power to raise prices on consumers and corporate rivals.
The Justice Department’s legal argument mirrors that of consumer groups who say AT&T could withhold Time Warner’s content from other TV and internet providers. Some consumers could then be compelled to switch to AT&T’s services from those of Comcast or Verizon to get access to Time Warner shows and movies, critics of the deal said.
AT&T’s chief executive, Randall Stephenson, has said such moves would not make sense for its business, as the company would want to ensure that its content is consumed by as many people as possible.
Other critics say a combined AT&T-Time Warner company could force rival cable channels to raise their prices, providing an incentive to funnel viewers to HBO or other channels that AT&T owns. Starz, the premium cable channel, made this argument to antitrust officials this summer.
The Justice Department’s lawsuit reflects a potential turning point in antitrust enforcement. The government has rarely brought legal complaints against mergers or acquisitions involving companies that do not directly compete, such as AT&T and Time Warner. The Justice Department allowed Comcast to purchase NBC Universal, a similar deal, in 2011 after the two companies agreed to conditions that regulated their behavior.
But Makan Delrahim, who was nominated by President Donald Trump to serve as the Justice Department’s antitrust chief and confirmed by the Senate in September, largely rejects the use of so-called behavioral remedies to address potentially anticompetitive tie-ups.
“That approach is fundamentally regulatory, imposing ongoing government oversight on what should preferably be a free market,” Delrahim said in a recent speech to the American Bar Association. The antitrust division, he continued, is likely to return to applying “structural” changes to problematic mergers that force two combining companies to sell off assets.
Earlier this month, antitrust officials explained to AT&T that the acquisition would fail to pass regulatory muster unless the company agreed to spin off some properties, such as either Turner Broadcasting or its DirecTV service, which AT&T bought in 2015.
But AT&T responded that it has no intention of making any major divestments, putting it squarely at odds with regulators.
Underlying that clash were questions about possible interference by Trump into what is supposed to be the Justice Department’s impartial review of the AT&T transaction.
The Justice Department’s suggestion that Turner be sold has been interpreted by some analysts as a veiled, indirect attempt by the White House to punish CNN for its critical reporting on the Trump administration.
On the campaign trail, Trump suggested the deal would be bad for democracy because it would concentrate control of the media in the hands of a dwindling number of firms. But he has also frequently criticized CNN for biased reporting.
AT&T has said it is willing to use the court process to unearth any evidence that might show communications between White House officials and the Justice Department on the deal. If such evidence is revealed, analysts say, AT&T could argue that Trump abused his position as president in order to carry out a politically motivated, personal attack against a private actor.
In addition to the political risks of going to court, the Justice Department lacks a persuasive economic case against the AT&T-Time Warner deal, according to other analysts.
“DOJ isn’t that great when it actually has to go to trial to block mergers, and the jurisprudence on blocking vertical deals is bad for any case the government would bring,” Robert McDowell, a former commissioner on the Federal Communications Commission, said, referring to the lack of precedent for a successful lawsuit against deals involving firms in different industries.
If AT&T ultimately wins the case, it would be allowed to close its deal with Time Warner without needing to divest any assets or make other concessions to government regulators – dealing Delrahim a major blow early in his tenure, according to Rich Greenfield, an industry analyst at BTIG. But, he added, losing the case could give Trump a stronger argument against media consolidation.
“We could envision President Donald Trump saying ‘Fake Courts’ and taking the populist approach that he tried and failed to stop big media from getting bigger,” Greenfield said in a research note last week.
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