WASHINGTON: The US government filed suit Monday to block AT&T’s merger with Time Warner, setting up the biggest antitrust court clash in decades over the $85 billion tieup.
The deal announced more than a year ago would merge vast content of Time Warner units like premium cable channel HBO and news channel CNN with the massive internet and pay TV delivery networks of AT&T.
“This merger would greatly harm American consumers. It would mean higher monthly television bills and fewer of the new, emerging innovative options that consumers are beginning to enjoy,” said Makan Delrahim, head of the Justice Department’s antitrust division.
Delrahim said AT&T with its DirecTV satellite operations and Time Warner’s content “would have the incentive and ability to charge more for Time Warner’s popular networks and take other actions to discourage future competitors from entering the marketplace altogether.”
Critics of the deal have said it would give too much power over the media industry to a single firm and enable AT&T to withhold key content from rivals or raise prices.
AT&T said it plans to challenge the government’s lawsuit, arguing that it was seeking a “vertical” merger without competitive overlap which should be approved based on legal precedent.
Randall Stephenson, AT&T’s chairman and chief executive, said the antitrust enforcers are ignoring “decades of clear legal precedent” and failed to take into account the “radical change” in the sector in which internet platforms like Netflix are transforming how media is consumed.
All about CNN?
The deal has also stirred up political concerns: Reports earlier this month said the government was prepared to approve the deal if AT&T would divest CNN, which has been a frequent target of President Donald Trump, who has attacked the network as “fake news.”
During the election campaign, Trump vowed to blocked the merger that would have some 142 million subscribers and a vast catalog of television, film and sports content.
Stephenson, at a news conference, reaffirmed his opposition of divesting CNN to win approval.
“There’s been a lot of reporting and speculation whether this is all about CNN, and frankly i don’t know,” he said.
“But nobody should be surprised that the question keeps coming up, because we have witnessed such an abrupt change in the application of antitrust law.”
Aiming for synergies
Stephenson has said he would have preferred a negotiated settlement with the Justice Department, but that any deal would not involve the divesting of CNN or the HBO premium video channel.
That is because AT&T —one of the largest telecom and pay TV operators—wants to boost its ability to marry content and advertising and better compete with the likes of Facebook, Google and Netflix.
“That’s where the synergies come from,” Stephenson said last week.
AT&T has also argued its merger would mirror a similar merger between cable giant Comcast and media-entertainment group NBCUniversal, which won approval with certain conditions.
But last week, Delrahim said in a speech he wanted to avoid “behavioral” remedies in mergers, stating “antitrust is law enforcement, it’s not regulation.”
Daniel Petrocelli, a lawyer for AT&T, said the government has the burden of proof to show it will hurt competition.
“This is a classic vertical merger, combining of two companies that do not compete with each other,” he said. “It should pose no antitrust problem.”
But Gene Kimmelman of the consumer group Public Knowledge welcomed the lawsuit, warning a merger would hurt consumers.
“The combined company would have the incentive and ability to harm rival video distributors and programmers, threatening the competitive future of online video, while giving the new company the ability to withhold programming or drive up prices for other satellite and cable players,” Kimmelman said.
Craig Aaron of the consumer group Free Press said “blocking this merger is the right thing to do—and we hope the Justice Department is doing it for the right reasons.”
BTIG Research analyst Richard Greenfield said the Comcast-NBCU deal may have “poisoned the water” for AT&T, noting that there is a perception Comcast has stretched the interpretation of its agreements.
“While the Department of Justice chose to approve the Comcast NBCU transaction, it put in place a seven-year consent decree to protect competitors, and ultimately consumers, from the antitrust risks posed by the transaction,” Greenfield added.