AT&T CEO says DOJ lawsuit “stretches … anti-trust law beyond the breaking point”
AT&T is defending its $85 billion acquisition of Time Warner from a challenge by the Trump administration’s Department of Justice. DOJ filed a lawsuit in the United States District Court for the District of Columbia yesterday, saying that the merged company “likely would … use its control of Time Warner’s popular programming as a weapon to harm competition.”
David R. McAtee II, senior EVP and general counsel for AT&T, called the lawsuit “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.”
In a press conference, AT&T CEO Randall Stephenson said he was both surprised and “troubled” by the developments.
“[Time Warner CEO] Jeff Bewkes and I entered into this deal with really, decades of clear legal precedent demonstrating how this merger would ultimately be evaluated. When we announced this deal, the best legal minds in the country agreed that this transaction would be approved, since since our companies don’t even compete with each other,” Stephenson said. “But here we are.” He added that the lawsuit “stretches the very reach of anti-trust law beyond the breaking point.”
“I’ve done a lot of deals in my career, but I’ve never done one where we have disagreed with the Department of Justice so much on even the most basic of facts,” Stephenson said, going on to add that AT&T had nonetheless offered and continues to offer “concrete and substantial solutions” that would address DOJ concerns and put the deal on the path to approval. Stephenson also noted the ongoing speculation that President Donald J. Trump’s combative relationship with CNN — part of Time Warner’s Turner Broadcasting unit — is part of the reason that the merger is being held up.
“I do want to address the elephant in the room here,” he said. “There’s been a lot of reporting and speculation 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 anti-trust law here. … 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.” Stephenson said that any agreement that would force a combined company to forfeit control of CNN, directly or indirectly, was a “nonstarter” and that AT&T also believes that divestiture of either AT&T or Time Warner assets is not required under the law.
For its part, the DOJ claims that the merger will result in higher consumer prices and inhibit competition from online video distribution companies. “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, head of the DOJ’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.”
Delrahim went on to add that “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.” DOJ noted in its complaint (read the filing here) that AT&T and DirecTV have “[described]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. … 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.”
Cowen & Co. analysts concluded that “after reviewing DOJ’s lawsuit against AT&T-Time Warner and watching AT&T’s press conference, we still see a settlement as possible and, failing that, we believe AT&T would prevail in court.”
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