DOJ Case 'Gossamer Thin,' Judge Says in Allowing AT&T/TW to Proceed

Chiding the government's case being, in part, "gossamer thin," U.S. District Judge Richard Leon of Washington rejected (see 1806120002) DOJ's lawsuit Tuesday seeking to block AT&T buying for $108.7 Time Warner. Leon also urged Justice not to seek a stay of his ruling if it appeals, saying the department would suffer no harm if the deal were allowed to go through in the meantime. He said the companies -- in the form of a $500 million breakup fee and the looming June 20 deadline for consummating the deal -- would suffer "irreparable harm" and a stay would be "manifestly unjust."

Reactions from those generally in favor of and opposed to consolidation implied that many saw the court OK as inevitable (see 1711210005). Some told us they see more mergers and acquisitions as possible as well as better chances that pending deals like T-Mobile/Sprint aren't challenged by government.

DOJ antitrust chief Makan Delrahim, in the courtroom for the decision, afterward said he was "disappointed." He said DOJ would review the decision before deciding next steps. His agency issued a similar statement.

AT&T/TW outside counsel Dan Petrocelli of O'Melveny said Leon's "sweeping rejection" reflected that the government throughout the case lacked credible proof. He said while "gratified" by the decision, that it's been close to 600 days since the deal was announced is "unfair." As to whether the litigation and AT&T/TW verdict will affect M&A more broadly, he said each proposed deal "stands on its own." AT&T said it expects to close on TW on or before June 20.

Leon read some of his 170-plus page opinion from the bench, citing heavy public interest in the decision. He said he and his staff had worked over the past six weeks to put together an order and not just a ruling since an opinion would better serve any appellate review.

The judge said DOJ failed to meet the burden of proof in each of its three arguments of competitive harm from New AT&T, including the assertion New AT&T would use Turner and its must-have content as a competitive cudgel against video distribution rivals. That there's never been a long-term blackout of Turner content was significant, he said. Leon dismissed testimony from MVPD rivals as potentially having competitive bias and overly speculative. And he said economic modeling that the DOJ relied on didn't take into account mitigating issues like existing long-term Turner contracts.

Leon also said the government hadn't demonstrated a likelihood New AT&T would use its competitive advantage against the virtual MVPD competition. And he said HBO's subscriber-reliant business model undercuts the government's argument New AT&T could wield it against MVPD rivals by restricting their promotional use of HBO, calling that conjecture.

Ex-FCC Commissioner Robert McDowell predicted the ruling "will be met with great exuberance and M&A activity. The market will continue to experiment and converge." McDowell, who advises T-Mobile and now is at Cooley, was among those not surprised by the decision. "The heart of the case was very difficult to prove, and the judge didn’t buy it," he said. "There has never been an incentive to withhold expensive content from more eyeballs."

DOJ should have focused on how the transaction would combine TW's "big data" on consumers with AT&T's, said Jeff Chester, Center for Digital Democracy executive director. "It’s not about the content, it’s about the eyeballs and the data that are attached to the swath of Time Warner content. That’s where the synergies in the deal lie," he said. "The judge delivered" ammunition "for perhaps a new wave of consolidation," he said, "to seize what’s left of the digital marketplace."

The American Cable Association is disappointed Leon neither blocked AT&T/TW nor enhanced the companies' commercial arbitration offer that didn't apply to HBO. The ruling "runs counter to numerous findings over the past 15 years" by FCC and DOJ "that vertical combinations between video programmers and distributors require robust conditions to constrain the incentive and ability of the combined firm to raise prices to rivals and reduce choice," wrote ACA. "The Court’s opinion is out of the mainstream."

"Unbelievable," tweeted former FCC Commissioner Michael Copps. "No grasp of market realities and the brightest green light ever for more telecom & media mergers. Justice denied is consumers skewered. A really sad day for democracy."