The Justice Department today filed suit to block the proposed merger between AT&T and Time Warner. The news, reported first by Bloomberg and later in subsequent reports from Reuters and Politico, is a drastic heightening of tensions between the DOJ and AT&T over what would be one of the largest media and telecommunications combinations in history.
Until today, only secondhand accounts from the inner workings of the merger approval process suggested the DOJ may not approve the deal, with the shadow of President Donald Trump hanging over the situation due to his personal feud with Time Warner-owned CNN. Now, however, the DOJ has officially laid out its argument for moving to block the merger, saying the combination of AT&T’s distribution networks and Time Warner’s news and entertainment products would harm competition.
“AT&T / DirecTV would hinder its rivals by forcing them to pay hundreds of millions of dollars more per year for Time Warner’s networks, and it would use its increased power to slow the industry’s transition to new and exciting video distribution models that provide greater choice for consumers,” reads the DOJ’s complaint. “The proposed merger would result in fewer innovative offerings and higher bills for American families.”
“It stretches the very reach of antitrust law beyond the breaking point.”
In a hastily put together press conference, AT&T’s executive leadership gathered in New York to harshly rebuke the DOJ lawsuit and defend the merits and legality of the merger. AT&T CEO Randall Stevenson said the lawsuit “‘stretches the very reach of antitrust law beyond the breaking point,” but he suggested that the company would look for a way forward, saying “as we head to court we will continue to offer solutions that allows this transaction to close.” Stevenson said selling CNN is off the table, however.
“The DOJ has to prove that this merger will harm competition, that this merger will harm consumers. It’s a burden that they have not met in a half a century and it’s one that they cannot and will not meet here,” said high-profile media lawyer Daniel Petrocelli, who sat next to Stevenson at the press conference and who AT&T hired to help it defend the merger.
“Under basic principals of law and economics, combining these two non-competing companies should pose no problem. The TV bill will not go up, and the combined company will not keep CNN, TNT, HBO or any other network to itself. Simply put, the theories in the DOJ’s complaint filed about an hour ago simply have no proof and make no sense in the real business world. We are confident that the law and facts will prevail and that this merger will be allowed to proceed.”
First proposed in October of 2016, the $85 billion merger proposal has drawn criticism as a dangerous consolidation of the media industry, with The Verge’s own Walt Mossberg calling it “an unhealthy concentration of power between a distributor and a maker of content.” FCC chairman Ajit Pai publicly declined to review the merger earlier this year, leaving the DOJ as the only agency positioned to review the public impact of the proposed deal.
The merger still poses risks due to uncertain rules around streaming video
Combining the two companies would be particularly powerful because of the still-uncertain rules around streaming video to mobile devices. Streaming video represents a lucrative opportunity for digital media companies, but the associated data charges can be expensive for consumers.
Carriers have responded with a string of zero-rated services that exempt certain video apps from data charges. That saves money for customers, but raises significant net neutrality concerns over which apps can benefit from the program. With the FCC currently rolling back the Open Internet Order, there would be few restrictions against favoring specific apps, giving a huge advantage to any video services aligned with the new conglomerate.
Recent reports have also raised concerns that Trump may have inappropriately influenced the Justice Department’s review. As part of negotiations, the Justice Department proposed a sell-off of some of Time Warner’s media holdings, which include CNN, TBS, and Cartoon Network. Some reports indicated that CNN was specifically targeted for divestment, which raised concerns given President Trump’s frequent and often unhinged criticism of the network.
As it stands, there is no proof Trump had any influence on the DOJ’s decision. “If there’s any proof there, I’m sure it will emerge and it probably won’t bode well for the government if it does,” Petrocelli said, responding to a question bout the White House’s role in the merger talks. “But we’re not dependent on that at all.”
Stevenson, in addressing the rumors swirling around Trump and CNN, had a lengthier and more definitive statement:
There’s been a lot of reporting and speculation of whether this is all about CNN — and frankly, I don’t know. But nobody should be surprised that the question keeps coming up because we’ve witnessed such an abrupt change in the application of antitrust law here. The bottom line is we cannot and we will not be party to any agreement that would even give the perception of compromising the First Amendment protections of the press. Any agreement that results in us forfeiting control of CNN, whether directly or indirectly, is a nonstarter. We believe quite strongly that any divestiture of AT&T assets or Time Warner assets is not required by the law, and we have no intention of backing down from the government’s lawsuit. We are in this to win, and absent a viable compromise that doesn’t violate our principals, we expect to do just that.
Update at 4:50PM ET, 11/20: Added statement from AT&T.
Update at 5:47PM ET, 11/20: Added confirmation of DOJ lawsuit and quotes from its complaint.
Update at 5:59PM ET, 11/20: Added quotes from AT&T’s live press conference.