The Justice Department sued Monday 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 move by the Justice Department’s antitrust division is unusual because it challenges a deal that would combine two different kinds of companies – a telecommunications giant with a media and entertainment company. Antitrust officials are relatively untested in the courts on opposing such deals and have rarely tried to quash them.
If successful, however, the government’s case would send a strong signal across the business world that Washington is no longer looking as kindly on such mergers.
“It may be one of the most important antitrust battles of modern times,” said Gene Kimmelman, a former federal antitrust official and president of Public Knowledge, a consumer advocacy group.
There is also political risk for the Justice Department. Some 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 department and the White House have denied.
AT&T has said it is willing to use the court process to unearth communications between White House and antitrust officials related to the case. If such evidence is uncovered, analysts say, AT&T could argue that President Donald Trump abused his position in the White House to carry out a politically motivated attack against a private actor.
Beyond his frequent criticisms of CNN’s reporting, Trump said on the campaign trail last year that the deal would concentrate control of the media in the hands of too few firms.
The administration’s lawsuit seeks to prevent a deal that would combine AT&T – one of the country’s largest providers of Internet access and subscription television services – with Time Warner’s enormous library of films, HBO, TV programming and other content.
AT&T said Monday that it is preparing to go to court.
“Today’s DOJ lawsuit is a radical and inexplicable departure from decades of antitrust precedent,” said David McAtee, AT&T’s general counsel. “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.”
Justice Department officials argued that the company resulting from an AT&T-Time Warner merger could use its power to raise prices for consumers and corporate rivals.
“This merger would greatly harm American consumers,” said Makan Delrahim, the Justice Department’s antitrust chief. “It would mean higher monthly television bills and fewer of the new, emerging innovative options that consumers are beginning to enjoy.”
Filed in the U.S. District Court for the District of Columbia, the government’s complaint accuses AT&T’s deal of violating Section 7 of the Clayton Act, the nation’s top federal law governing mergers and acquisitions. In making their argument, antitrust officials pointed to what they said were AT&T’s earlier criticisms of Comcast’s purchase of NBCUniversal in 2011, a similar type of deal involving a content company and a content distributor.
At the time, AT&T argued that allowing Comcast to acquire NBCUniversal would give the combined company the ability to use programming to hinder competition, antitrust officials said.
The Justice Department cited AT&T’s ownership of DirecTV, the satellite television provider that it bought in 2015, as a reason that the current deal raised more concerns than Comcast’s.
“We concluded [the AT&T tie-up] was even more harmful than the Comcast-NBC matter,” said a Justice Department official, speaking on the condition of anonymity to discuss internal agency deliberations.
But in a news conference Monday, AT&T disputed the account of the antitrust officials, saying that it had not commented on the Comcast-NBCUniversal merger, adding that it was DirecTV, not AT&T, that made those arguments before the two companies combined.
Still, some critics, such as the premium cable channel Starz, have argued that a merged AT&T-Time Warner conglomerate could force rival TV networks to raise their prices, providing an incentive for viewers to subscribe to HBO or other channels that AT&T would own.
Consumer advocates said that AT&T could withhold Time Warner’s content from other TV and Internet providers. Consumers could then be compelled to switch to AT&T’s services from those of Comcast or Verizon to get Time Warner shows and movies.
AT&T chief executive Randall Stephenson has said that such a move would not make sense for its business, since the company would want to ensure that its content is available to as many people as possible.
The Justice Department 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. Instead, it has preferred to impose enduring conditions on a combined company to make sure it behaves in competitive ways.
But Delrahim, who was nominated by Trump and confirmed by the Senate in September, largely rejects the use of “behavioral” remedies to address potentially anti-competitive 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 added, is likely to return to applying “structural” changes to problematic mergers that force two merging companies to sell off assets.
In a closed-door meeting in Washington this month, antitrust officials told AT&T executives that the acquisition would fail to pass regulatory muster unless the company agreed to spin off some properties, such as Turner Broadcasting, which owns CNN, or its DirecTV service.
AT&T said Monday that it has no intention of making any major divestments.
The Justice Department’s suggestion to AT&T that it sell Turner Broadcasting was interpreted by some executives and analysts as a veiled attempt by the White House to punish CNN for its critical reporting on the Trump administration.
Even beyond the politics surrounding the case, the Justice Department may not have an airtight economic argument against the AT&T-Time Warner deal, some analysts said.
“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,” said Robert McDowell, a former commissioner on the Federal Communications Commission, 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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