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The U.S. Department of Justice appears determined to hoist management at AT&T Inc. and Time Warner Inc. on their own petards. The department's complaint seeking to block their merger cites documents and comments from the companies in question that appear to jibe with the DOJ's opinion that a merger would not be in the public interest. In a test of the new administration's policy on large transactions in the media space, a court date of December 7 was set for an initial status conference in the United States of America v. AT&T Inc., DIRECTV Group Holdings LLC and Time Warner Inc.
The two parties are fighting over a start date for the actual trial of U.S. v. AT&T Inc. (17-cv-2511), according to a report from Variety. AT&T is asking for a February 20, 2018, date, and the DOJ wants a May 7, 2018, date, more than two weeks after the Time Warner merger agreement with AT&T is set to expire on April 22.
It is possible that a full trial will not be needed and a settlement will be reached. That was the case in the battle over Comcast Corp. buying 51% of NBCUniversal Media LLC (and eventually the other 49%). However, the myriad issues in this case will not be easily resolved.
On the face of it, many of the issues in this case are similar to what cropped up in the Comcast/NBCUniversal merger and ought to be able to be resolved via a negotiated settlement. But the government appears to have dug in its heels and reportedly wants the potential combined company to divest either DIRECTV or the Turner group of cable networks.
AT&T is not amenable to either option and is ready to go to court. The DOJ strategy for the upcoming trial was laid out in the complaint filed on November 20 opposing the merger, primarily on the following grounds:
- The merged company would lessen competition and harm consumers in the video distribution market by increasing the prices its rival multichannel video programming distributors and virtual MVPDs pay for Turner's networks, while impeding their use of HBO to attract customers.
- The merged company would have the ability to impede and slow innovation by hindering emerging online competitors and would increase the likelihood of oligopolistic coordination.
The government posits that if Turner were about to get into a carriage dispute with an MVPD, AT&T would know it beforehand and could target the MVPD's customers with ads and telephone calls urging them to subscribe to AT&T's offerings. However, it's not clear why this would be a strong argument given that the Comcast/NBCUniversal merger was allowed to take place considering that the players in that case could have, in theory, done the same thing.
One flaw in the government's logic that would surely be fought tooth and nail in court by AT&T (if it comes to that) is that they say "American consumers have few options for traditional subscription television … this means paying higher prices year after year and waiting on hold to hear why a service technician is running late or why their monthly bill has skyrocketed."
That may have been true a decade ago, but it certainly is not true today, with manifold over-the-top and virtual service providers in the market. Both DIRECTV (with DIRECTV NOW) and DISH Network (with Sling TV) have VSPs that require no truck roll and no call to customer service.
We think one of the best arguments the DOJ has is citing Section 7 of the Clayton Act, which prohibits mergers if the effect of such an acquisition may be substantially to lessen competition, including vertical mergers as laid out in the 1950 amendments to the Clayton Act.
Again, however, AT&T will be asking the DOJ attorneys why a merger of AT&T and Time Warner would be worse for the public interest than the Comcast/NBC Universal combination. AT&T Chairman, President and CEO Randall Stephenson also has said that the company is willing to make concessions, but not asset sales.