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DoJ challenges AT&T/TW deal

November 21, 2017

The United States Department of Justice (DoJ) has filed a civil antitrust lawsuit to block AT&T/DirecTV’s proposed acquisition of Time Warner, suggesting that the $85.4 billion (€78.5bn) deal would substantially lessen competition, resulting in higher prices and less innovation for millions of Americans.

According to the complaint, which was filed in the United States District Court for the District of Columbia, the combined company would use its control over Time Warner’s valuable and highly popular networks to hinder its rivals by forcing them to pay hundreds of millions of dollars more per year for the right to distribute those networks. The combined company would also use its increased power to slow the industry’s transition to new and exciting video distribution models that provide greater choice for consumers, resulting in fewer innovative offerings and higher bills for American families.

“As AT&T itself has expressly acknowledged, distributors with control over popular programming ‘have the incentive and ability to use . . . that control as a weapon to hinder competition’ notes the DoJ, adding that as DirecTV itself has explained, such vertically integrated programmers ‘can much more credibly threaten to withhold programming from rival [distributors]’ and can ‘use such threats to demand higher prices and more favourable terms’. “This merger would create just such a vertically integrated programmer and cause precisely such harms to competition,” it suggests.

“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 Assistant Attorney General Makan Delrahim of the Department’s Antitrust Division. “AT&T/DirecTV’s combination with Time Warner is unlawful, and absent an adequate remedy that would fully prevent the harms this merger would cause, the only appropriate action for the Department of Justice is to seek an injunction from a federal judge blocking the entire transaction,” he declared.

“The merger would also enable the merged company to impede disruptive competition from online video distributors, competition that has allowed consumers greater choices at cheaper prices,” Delrahim further explained. As noted in the complaint, AT&T/DirecTV describes the traditional, big bundle pay-TV model as a ‘cash cow’ and ‘the golden goose’. If permitted to merge, AT&T/DirecTV/Time Warner 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. For example, the merged firm would likely use its control of Time Warner’s programming, which is important for emerging online video distributors, to hinder those innovative distributors. Indeed, a senior Time Warner executive has stated that they have leverage over an online video distributor, whose offering would be ‘[expletive] without Turner’. “That leverage would only increase if the merger were allowed to proceed,” claimed the DoJ.

David R. McAtee II, Senior Executive Vice President and General Counsel, AT&T, described the lawsuit as “a radical and inexplicable departure from decades of antitrust precedent”. “Vertical mergers like this one are routinely approved because they benefit consumers without removing any competitor from the market. We see no legitimate reason for our merger to be treated differently,” he added.

“Our merger combines Time Warner’s content and talent with AT&T’s TV, wireless and broadband distribution platforms. The result will help make television more affordable, innovative, interactive and mobile. Fortunately, the Department of Justice doesn’t have the final say in this matter. Rather, it bears the burden of proving to the US District Court that the transaction violates the law. We are confident that the Court will reject the Government’s claims and permit this merger under longstanding legal precedent,” he concluded.


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