AT&T/TW Verdict Not Seen Affecting Other Vertical Mergers; DOJ Won't Seek Stay
U.S. District Judge Richard Leon giving a thumbs up to AT&T buying Time Warner (see 1806120060) isn't precedent-setting and shouldn't affect how DOJ looks at other potential vertical mergers, experts said on C-SPAN's The Communicators, to be telecast Saturday and now online. "I don't think this is a referendum on vertical mergers," said Joshua Wright, executive director-Global Antitrust Institute, George Mason University. The American Antitrust Institute, which opposed the deal, wants Justice to appeal. FCC Chairman Ajit Pai, meanwhile, said separately he will continue judging deals case by case and vertical combinations are neither necessarily good nor bad (see 1806140049).
Thursday, Leon said AT&T and TW are authorized to close the deal, according to court minutes. The U.S. District Court for the District of Columbia docket 17-cv-02511-RJL order came after companies' outside counsel Dan Petrocelli of O'Melveny & Myers wrote (in Pacer) the Antitrust Division with a series of operational pledges to run through Feb. 28, 2019, or the conclusion of any DOJ appeal, whichever comes first. New AT&T will manage Turner as a separate business unit from its video distribution operations, AT&T's MVPD arm won't have a role in setting Turner prices or other terms, and the telco will keep a firewall between Turner and its MVPD arm to prevent exchange of competitively sensitive information about unaffiliated programmers or distributors. Petrocelli's letter said DOJ, based on those pledges, said it won't request a stay pending appeal. Justice didn't comment.
Tuesday's decision didn't sweepingly reject Justice's theories of competitive harm, and economists have known vertical mergers -- while typically pro-competitive by reducing costs -- can hurt competition, Wright said. DOJ's theories of harm here aren't controversial, and the decision reflects that Justice fell short in proving those theories -- especially in light of the consumer benefits government conceded would also arise, Wright said. Justice "may bring a better case tomorrow" involving another vertical transaction with demonstrable harms to consumers, he said.
The government should appeal given the one-sidedness of the opinion and strength of the government's case, said AAI President Diana Moss, saying Leon's decision was "poorly framed." She criticized rejection of evidence including testimony and what DOJ's economic model showed and said the decision suffered from not laying out the broader context of the video market. She said there has been sizable deference in antitrust circles to claims of vertical merger efficiencies, but skepticism about those efficiencies is increasing. Moss called it "troubling" that the ruling assumes AT&T and TW will operate separately and there was no recognition of the realistic idea they have every incentive to collaboratively disadvantage competitors to maximize profit.
Wright, formerly an FTC commissioner, said it's not uncommon that economic analyses, business documents and customer testimony being reviewed by a regulator point in different directions. "Those are not good cases," he said. DOJ is unlikely to be gun-shy about challenging vertical deals if it believes they pose anti-competitive harms, though the ruling could change how they're litigated, Wright said, saying it and the FTC will likely be more careful about what inputs go into its economic modeling, an area where Leon was particularly critical.
Wright and Moss were at odds over the significance of Leon's ruling running 172 pages. Moss said that reflected the strength of the government's case, pointing to a strong appeal. Wright said district court judges like to write long, fact-specific decisions to make them appeal proof.
Mobile Ecosystem Managing Director Mark Lowenstein blogged Thursday that consumers should start seeing benefits within months with more content bundles or possible free HBO for AT&T wireless subscribers. New AT&T also will need to be careful and transparent about its use of subscriber data and to uphold its promises about not discriminating in provision of TW content to competitors of AT&T's DirecTV. He said the telecom industry "will look less homogenous," with mobile-centric AT&T being closer to broadband-centric Comcast than to Verizon. And he said there could be more interest in a deal for Dish Network's spectrum as part of the accelerating M&A trends in media and telecom.
AT&T/TW is now among ranks of "real heavyweights" in the global video market such as Facebook, Apple, Amazon, Netflix and Google, The Diffusion Group senior adviser Joel Espelien wrote Wednesday. Those companies have deep pockets, access to legions of users and demonstrated commitment to direct-to-consumer original video content, he said. The days of being a large player in just one area, like pay TV or broadband, are ending, he said, citing Comcast/NBCUniversal, Verizon/Yahoo and now AT&T/TW. Espelien said the must-have nature of original content shows why Disney and Comcast "are about to have a death match over Fox Studios and Hulu" (see 1806130036) and other large players will either build or acquire their own studios.