The AT&T and Time Warner Merger: A Threat to Competitors?

The typical American household pays $2,700 on digital communication services per year.[1] Modern households will often find these services to be as much of a necessity as electricity, running water, and groceries. However, there lies a relatively high probability that these payments will increase significantly in the coming years. Such a change would result from the consolidation of the following major companies: American Telephone and Telegraph Inc. (AT&T) and Time Warner Inc.

In October of 2016, AT&T first announced the potential of a consolidation between itself and Time Warner. This consolidation is currently expected to close by the end of 2017, given that AT&T’s Time Warner acquisition manages to survive the scrutiny of the Department of Justice (DOJ)—the only barrier now standing in its way. The DOJ, along with many Americans, has raised the concern that this merger will place a considerable amount of power into the hands of AT&T. After all, one of the largest communications and digital services providers consolidating one of the world’s largest content producers would severely limit direct competition. However, AT&T’s CEO Randall Stephenson insists that the DOJ’s threats are politically motivated with President Donald Trump acting as the puppeteer. These claims are based on President Trump’s long-held bias against CNN, which remains a subset of Time Warner. As a matter of fact, legal action on this type of deal is unprecedented, leading a number of critics to question the impartiality of the DOJ’s antitrust claims. AT&T’s general counsel David McAtee II has gone as far as to call the DOJ’s lawsuit “radical and [an] inexplicable departure from decades of antitrust precedent.”[2] Regardless, the DOJ has a long history of judging the legality of mergers under antitrust laws. In the case of AT&T and Time Warner, it may be proven helpful to apply the case Comcast v. Behrend, as they mirror the ongoing tense, legal battle between the DOJ and private sector companies.

American Telephone and Telegraph Inc. actually has a rather complicated past with the DOJ when it comes to mergers. In 2001, the DOJ filed an antitrust lawsuit against AT&T Inc.’s proposed acquisition of T-Mobile USA Inc. The rationale the DOJ provided for blocking the merger was that it would severely limit competition, which would lead to tens of millions of customers across the country facing “higher prices, fewer choices and lower quality products for mobile wireless services.”[3] The DOJ also claimed that this would place “significant limitations” on regional competitors. A federal judge was persuaded to block the deal, thereby denying AT&T’s acquisition of T-Mobile. These major claims are similar to those proposed by opponents of the merger between AT&T and Time Warner. Bloomberg political analyst Christopher Palmeri and media and communications professional Sara Forden, for example, insist that the merger would “hurt competition and consumers.”[4]⁴ Something to be wary of, however, is that the AT&T and T-Mobile merger was a horizontal merger—the consolidation of two firms which produce the same product. It is essential to note that Time Warner and AT&T, while operating in the same market, perform at different levels of the production process (i.e. vertical merger). Time Warner is a cable television company; whereas AT&T is a telecommunications company. Thus, proving that AT&T’s acquisition of Time Warner limits competition and hurts consumers would be a much more difficult task.

Yet, if the DOJ maintains that the power AT&T would receive under the vertical merger is a threat to competitors and customers alike, what can the firm do to prevent legal confrontation? A case which prominently mirrors the AT&T and Time Warner consolidation is the Comcast-NBCU joint venture of 2011. On January 18, 2011, the DOJ reached a settlement with Comcast Corp. and General Electric Co.’s subsidiary NBCUniversal Inc. (NBCU) over the joint venture the two had agreed on. The DOJ had originally filed a lawsuit on the grounds that the joint venture “would allow Comcast to limit competition from its cable, satellite, telephone and online competitors.”[5]⁵ A settlement proposed by the DOJ and five states (Texas, California, Florida, Missouri, and Washington), however, ended all litigation. This settlement allowed for the joint venture to continue given that the parties agreed to “license programming to online competitors to Comcast’s cable TV services, subject themselves to anti-retaliation provisions and adhere to Open Internet requirements.” Similar to the Comcast-NBCU case, AT&T and Time Warner are being urged to settle with the DOJ, thereby avoiding any unnecessary litigation. Antitrust officials, who have taken a more in-depth look at this issue, have advised AT&T to “sell Turner and then form a joint venture with the newly separated company.” Similar to the actions taken under Comcast-NBCU, it seems wise that AT&T takes some sort of measure to reassure its competitors, and more importantly the DOJ, that owning CNN, CBS, and other Turner cables (all of which would come from a merger with Time Warner unless explicitly stated otherwise) would not threaten competitors, would not result in higher prices, and would not create a monopoly.

The DOJ has rarely expressed concern over a vertical merger posing a threat to national and regional competitors. It is, however, evident that there is an inherent concern over the power AT&T Inc. would acquire by consolidating with Time Warner. The DOJ and competitors are justified in asking that AT&T figure out a way of receiving all the benefits of a merger without acquiring ownership of CNN, TBS and other Turner channels. If AT&T wishes to avoid litigation and the chances of a defeat in court, it would be wise of them to agree on a settlement with the DOJ. If they, however, maintain that the DOJ’s demands to sell either CNN or DirecTV comes as a result of Trump’s bias against CNN, it may be worthy to take the case to court after all.

[1] Al Franken, “The Merger Between AT&T and Time Warner Is a Raw Deal for Us,” TechCrunch, Nov. 7, 2017, https://techcrunch.com/2017/11/07/the-merger-between-att-and-time-warner-is-a-raw-deal-for-the-rest-of-us/?ncid=mobilenavtrend

[2] Alexa Liautaud, “The Trump administration is suing AT&T over its merger with Time Warner,” VICE News, Nov. 20, 2017, https://news.vice.com/story/trump-administration-isuing-att-merger-time-warner?utm_source=vicenewstwitter

[3] “Justice Department Files Antitrust Lawsuit to Block AT&T’s Acquisition of T-Mobile,” The United States Department of Justice, Aug. 31, 2011, https://www.justice.gov/opa/pr/justice-department-files-antitrust-lawsuit-block-att-s-acquisition-t-mobile

[4] Sara Forden and Christopher Palmeri, “U.S. Is Said to Suggest Ways AT&T Could Win Time Warner Approval,” Bloomberg, Nov. 11, 2017, https://www.bloomberg.com/news/articles/2017-11-12/u-s-is-said-to-suggest-ways-at-t-could-win-time-warner-approval

[5] “Justice Department Allows Comcast-NBCU Joint Venture to Proceed with Conditions,” The United States Department of Justice, Jan. 18, 2011, https://www.justice.gov/opa/pr/justice-department-allows-comcast-nbcu-joint-venture-proceed-conditions