DOJ Attempt to Block AT&T/TW Deal Seen Facing Tough Odds

Antitrust experts think DOJ's litigation seeking to block AT&T's buy of Time Warner faces an arduous uphill climb in court. Some stakeholders applauded the lawsuit filed Monday in U.S. District Court in the District of Columbia (see 1711200064). If fully litigated, "it will define antitrust for years to come," said Gus Hurwitz, co-director, Nebraska College of Law space, cyber and telecom law program. A Justice win would reshape views on vertical transactions, while a loss opens the floodgates to more such transactions, he said.

Experts were struck by the suit's lack of data or analysis. Antitrust lawyer Ethan Glass of Quinn Emanuel said the various citations -- such as references to concerns raised by AT&T about another vertical deal, Comcast/NBCUniversal -- seemingly aren't germane to the question of whether New AT&T will negatively affect competition. One would expect DOJ "would put their best foot forward," especially in a closely watched merger, Glass said. Justice didn't comment.

Senate Commerce Committee member Ed Markey, D-Mass., Monday tweeted support of litigation, saying there's "a compelling case" from a consumer protection and competition standpoint. The Open Markets Institute said Tuesday the proposed buy "is anti-competitive" and would "accelerate a dangerous trend" of media consolidation, threatening both open markets and democracy. OMI also backed breaking up Comcast/NBCU.

DOJ's legal and economic analysis in its complaint "is not unprecedented," with the FCC having said Comcast/NBCU as initially proposed would hurt video distribution competition, said American University research professor of law and former FCC chief economist Jonathan Baker. Though the department is seeking a different remedy in AT&T/TW, he said, the FCC's Comcast/NBCU decision "provides a road map" for looking at the competitive effects here.

President Donald Trump doubled down on his AT&T/TW concerns. "I'm not going to get involved in litigation," he told reporters. "Personally, I've always felt that that was a deal that's not good for the country. I think your pricing is going to go up."

DOJ's Complaint

The deal would hurt consumers by reducing competition among traditional video distributors and slowing emerging online competition, said DOJ's suit, saying New AT&T would have the power to drive up costs at rival MVPDs, resulting in higher consumer costs. The agency alleged New AT&T likely would use Turner programming to hinder virtual MVPD growth by charging them more, and make "oligopolistic coordination more likely" since the structures of the two largest traditional video distributors would be aligned, giving them incentive and ability to coordinate to impede competition from online rivals.

DOJ raised red flags about TW control of must-have sports programming, saying such sports are of increasing importance to MVPDs and virtual MVPDs. TW sports holdings include MLB contracts through 2021, NBA through 2025 and the NCAA March Madness through 2032, it said. Justice asked the deal be adjudged to violate the Clayton Act and the companies permanently enjoined from the transaction or any other similar deal.

Antitrust lawyer David Balto said DOJ arguments about AT&T charging competitors more suffers from the fact most assessments of Turner content are that "it's not entirely that valuable." Balto said AT&T has "a powerful argument" it lacks incentives to raise programming costs because it wants real value for that programming, and DOJ doesn't have examples of exclusionary past conduct. DOJ likely will bring out witnesses like AT&T competitors to testify to harms, but the judge likely will be skeptical since sophisticated businesses have many tools with which to respond to that kind of conduct, Balto said.

It's "a bit of a puzzle" why the DOJ pursued what appears to be a thin case, Hurwitz said. He said it's possible staff had been developing theories of harm and a complaint to support a settlement with behavioral remedies and then new antitrust chief Makan Delrahim nixed a behavioral remedy approach. Hurwitz said the case is unlikely to go to trial and DOJ perhaps filed it because it ran out of time to review the deal as laid out under the Hart-Scott-Rodino Act and wanted to keep negotiating. He said the agency could face a hard time in court due to likely judicial skepticism over the agency having approved other vertical transactions.

Even if AT&T withheld some content from competitors, such exclusive or preferential deals "are virtually always beneficial for consumers" by resulting in more content creation and more innovation in means of distribution, said the International Center for Law & Economics Monday. It said since the FCC, under Section 628 of the Communications Act, prohibits unfair competition, there's no basis for opposing the deal.

Even before AT&T/TW and Delrahim in his new job, there was increased unwillingness to accept settlements and a stronger tendency to pursue cases, with the Antitrust Division in the past couple years of the Obama administration suing to stop takeovers, said antitrust lawyer Kelsey Shannon of Lynn Law Firm, previously with the division. He said there's plenty of case law and a playbook how to challenge a horizontal merger on antitrust grounds, but "that playbook is not really applicable" in a vertical case since concentration doesn't increase when the combining companies operate in different markets.

No Settlement?

AT&T won't settle out of expediency, and is fighting out of legal principle, said CEO Randall Stephenson Monday. He said the company offered proposed conditions. He said the DOJ investigation -- at 13 months -- is particularly long, but the company "felt like it was headed down a good path" and the suit was the first indication of an impasse. General Counsel David McAtee said the Comcast/NBCU-related quotes in the complaint were taken out of context and the competitive landscape is different. He said AT&T argued for conditions, not that the Comcast/NBCU be blocked.

The litigation could chill future potential media buys, with Sinclair/Tribune and Discovery/Scripps Interactive likely worried about their deals, said American Cable Association President Matt Polka. It's obvious vertical consolidation hurts consumers, which is why program access rules exist, Polka said. He said if AT&T/TW faced FCC review, where the agency imposed behavioral conditions in the past, ACA would be asking for conditions that provide some protections in negotiations, such as access to cable programming signals.

The number of antitrust transaction trials has grown in recent years with companies more willing to go to court or less willing to give DOJ what it seeks, Glass said. Whether there would be a settlement in AT&T/TW could depend on whether there's a natural break that doesn't undermine the deal's value, he said. He said structural settlements are more complex than monetary settlements: "There may not be a meeting point."

Facebook and Google could end up "the big losers" of the AT&T litigation, with their advertising, content and distribution dominance likely being a defense at trial, tweeted media/tech entrepreneur Mark Cuban Monday. "That could create bigger issues for them."