Trial begins over AT&T-Time Warner merger reviled by Trump

- Maret 18, 2018

A high-stakes trial begins Monday over the Justice Department’s decision to block the $85 billion merger between AT&T and Time Warner — a deal that President Donald Trump thrust into the political spotlight with his outspoken and repeated opposition.

But District Judge Richard Leon has tamped down efforts to make politics a factor in the trial, rejecting calls from both the companies and former DOJ officials to examine whether the White House improperly interfered in the government’s review process.

That means attorneys on both sides will focus their arguments on whether allowing AT&T, the nation’s largest telecommunications provider, to combine with Time Warner, owner of HBO, Turner Broadcasting and Warner Bros., will hurt competition in the TV industry and harm consumers.

"Many observers expected the federal agencies to be pushovers for the business community for mergers" during the Trump administration, said William Kovacic, a former Federal Trade Commission chairman under former President George W. Bush. "The filing of this case, standing alone, upsets the conventional wisdom."


The lawsuit in Washington indeed represents a prominent test of the populist antitrust agenda Trump touted on the campaign trail, when he said the AT&T deal would put “too much concentration of power in the hands of too few" and pledged his administration would stop it.

Trump frequently takes aim at Time Warner-owned CNN for its news coverage, which he labels "fake news." Those fiery remarks have raised concerns among some lawmakers and advocates — even those who oppose the deal — that Trump's ire may have swayed the Justice Department's thinking in the case.

Even so, the DOJ's opposition to the deal on the grounds it could raise prices and limit competition has garnered support from a number of public interest groups and consumer advocates who have split with the Trump administration on most other policy matters.

"This is a huge test case for the administration’s commitment to challenge further consolidation and domination of major media and communications platforms," said Gene Kimmelman, president of advocacy group Public Knowledge who served as DOJ antitrust chief counsel under former President Barack Obama.

The trial is also a key moment in the six-month tenure of Trump's DOJ assistant attorney general for antitrust, Makan Delrahim.

Before joining the administration, Delrahim said in a TV interview he didn't see any significant issues that would keep the AT&T-Time Warner deal from moving forward. Since assuming his DOJ role, however, he's taken a different tack, speaking about his preference for "structural remedies" to corporate mergers, such as forcing divestitures, when the transaction poses a threat to competition.

Delrahim says this tougher approach applies even if the companies in question are not direct competitors — so-called vertical mergers that have historically attracted less scrutiny from U.S. regulators. One such transaction, the 2011 union of Comcast and NBC Universal, was approved by the Obama Justice Department with a set of "behavioral" conditions that, among other things, temporarily restricted how the combined company priced online products. AT&T and Time Warner say their deal is comparable.

The Trump DOJ offered AT&T and Time Warner multiple options for "structural" changes to gain government approval, including selling off CNN parent Turner Broadcasting or DirecTV, but the companies balked at those offers because, they said, the deal's value comes from marrying the two lines of business.


Sources close to those negotiations said at the time that CNN appeared to be the main sticking point for the government. Justice Department officials later said the companies themselves offered to jettison CNN, an offer DOJ rejected. AT&T CEO Randall Stephenson pushed back on that narrative, saying he never offered to sell CNN and had no intention of doing so.

Antitrust watchers say the judge's ruling could influence how the government regulates future media mergers, at the Justice Department and at the Federal Communications Commission.

Fernando Laguarda, an antitrust professor at American University's Washington College of Law, believes a DOJ win would be fodder for "those who argue for more scrutiny of programmer-distributors relationships" and reinforce concerns that such pairings can "weaponize" content to punish competitors.

A company win, on the other hand, would give future vertical mergers a case on the books that suggests regulators should take a light-handed approach, added Laguarda, who served as policy counselor at Time Warner Cable, which spun off from Time Warner in 2009.

Since late November, government lawyers have cast the transaction as bad for market competition and thus for American consumers. They say a conjoined AT&T and Time Warner would have an incentive to use its size and might to shut out internet upstarts and inflate cable bills that already cause customers to gripe.

“Expertise and real-world experience alike will demonstrate that this proposed transaction poses an unacceptable threat to competition and consumers," DOJ asserted in a pretrial brief.

The companies, meanwhile, have questioned the DOJ's motives for blocking the merger and asked that communication logs between the White House and top agency officials be turned over as evidence of possible meddling. Leon rejected that request, saying their reasoning for obtaining the information was not strong enough.


The judge, though, also denied DOJ's request to exclude as evidence an arbitration agreement that AT&T and Time Warner made with other TV distributors. That contract precludes the companies from withholding their programming in licensing disputes — a concession they say should placate the government's concerns about shaking down competitors.

AT&T paints the merger as a fight for relevance. The Dallas-based company, which bought satellite television provider DirecTV in 2015, contends that Netflix, Amazon and Google’s YouTube have become leading players in the market, distributing some of the nation’s most popular programming to subscribers that now number in the millions.

"This merger has never been about making Time Warner programs less accessible or more expensive," the companies said in a pretrial brief. "Just the opposite: it is about making Time Warner and AT&T more competitive during a revolutionary transformation that is occurring in the video programming marketplace."

AT&T says acquiring Time Warner’s trove of marquee media properties will enable the company to offer new products that better meet the demands of always-connected customers while creating business savings that result in lower prices for its subscribers.

The outcome of the AT&T-Time Warner case is likely to have implications for whether the telecom and media industries continue to consolidate and how legacy players compete with the advances of less-regulated technology companies.

"This could be an interesting sign post about how that market is going to evolve," Laguarda said.


 

Start typing and press Enter to search