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The arguments behind DOJ’s looming lawsuit with AT&T


(Andrew Harrer/Bloomberg News)

As the Justice Department prepares for a legal showdown with AT&T over its $85 billion bid for Time Warner, analysts are debating whether the acquisition has potential harms for consumers and business competition that could sink the deal in court.

One central concern at Justice is that AT&T could seek to deny other providers of TV and Internet, such as Comcast and Verizon, access to Time Warner’s programming, and that it could prevent the rise of new technologies aimed at delivering content to consumers, according to people familiar with the matter who spoke on the condition of anonymity to discuss internal deliberations.

Time Warner owns a substantial library of content, including shows from HBO, news from CNN, and films such as “Wonder Woman” and “Harry Potter.” Under AT&T’s control, that content might be blocked from viewers who are customers, for instance, of Comcast’s cable TV product, critics of the deal say.

“This deal would give a combined AT&T-Time Warner both the incentive and the ability to favor its own content over that of rivals and restrict access to its content for competing distributors, ultimately resulting in higher prices and fewer choices for consumers in Minnesota and across our nation,” Sen. Al Franken (D-Minn.) said in a statement Friday. Franken joins others who have critiqued the deal, including the Consumer Federation of America, the American Family Association, Americans for Limited Government and the Writers Guild of America West.

On Friday, AT&T referred to arguments that chief executive Randall Stephenson made before the Senate last year, saying that it would be “irrational business behavior” for AT&T to restrict access to Time Warner’s programming.

“Time Warner’s programming is more valuable when distributed to as many eyes as possible,” Stephenson said at the time. “At the same time, as a distributor of video services, AT&T must offer the programming its customers want, regardless of whether or not AT&T owns that programming.”

AT&T has also said the deal would help consumers, because the resulting business in targeted advertising would allow the telecom giant to lower the price of subscription TV and compete against companies such as Google and Facebook.

“One of the key benefits of putting these two companies together is to stand up a new advertising capability,” Stephenson said this week at a conference hosted by the New York Times.

Other programmers have pushed back against the proposed plan, arguing that the deal would raise their costs and force consumers to pay more. One company that has publicly made this argument is Starz, which in July published a study saying AT&T could easily discriminate against the premium cable channel.

“Once it buys HBO, it will have an incentive to raise the cost of its rival premium channels,” said Jeff Eisenach, the economist commissioned to write the study. AT&T, he added, could choke off Starz’s access to AT&T subscribers and put the programmer in a difficult position: reduce costs by scaling back production, making it an inferior product, or raise prices to compensate for the shrinking audience.

The largest firms with formidable content libraries of their own might be able to compete in this environment. But, analysts say, that could create incentives for the biggest media companies to tacitly collude. For example, AT&T and another company with control over must-watch content could raise the price of that programming at nearly the same time, which would put pressure on smaller cable companies that wish to carry it. Those firms must either pay up or risk losing subscribers, said John Bergmayer, an attorney at the consumer group Public Knowledge, which has opposed the deal.

“They [could] come to deals with each other that are then used to the detriment of smaller competitors,” he said, “where it seems like price-fixing but it’s not — there’s never some smoke-filled room.”

The Justice Department typically addresses anti-competitive deals in a number of ways. It can propose remedies that wind up changing the behavior of a combined firm. It can propose divestments, or the sale of assets that effectively create new competitors in the marketplace. And it can sue to block an acquisition entirely.

In the case of AT&T, the department has pushed for the sale of assets such as Turner Broadcasting or DirecTV. But AT&T has argued against divestitures, saying they would undercut the rationale for the tie-up in the first place. (The Justice Department declined to comment.)

“These folks — Amazon, Google, Facebook — have created some amazing franchises. What we’re doing here is something that we hope gives us a shot at competing with them,” said Stephenson.

(Amazon chief executive Jeffrey P. Bezos also owns The Washington Post.)

With the two sides at a standoff, analysts say a lawsuit appears imminent unless the deal changes in ways that can satisfy regulators. But the litigation could be complicated by President Trump’s prior statements criticizing the merger. Analysts say Trump’s remarks could become evidence of an intent to suppress the free speech of a private actor, which could be considered a First Amendment violation. On Friday, Sen. Amy Klobuchar (D-Minn.) repeated calls she made in July for the White House to disclose any communications between Trump, his aides and the Justice Department on the deal.

In a statement, Klobuchar “stressed again that political interference in antitrust enforcement is unacceptable, and called on the President and Assistant Attorney General Makan Delrahim to respond to the questions about interactions between the White House and DOJ regarding the proposed AT&T and Time Warner transaction.”

The White House and Justice Department have denied that any inappropriate communications have taken place.

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