AT&T to Fight U.S. Opposition to Its Proposed Merger With Time Warner

AT&T is not going away quietly and is taking on the Department of Justice directly in an escalating battle about its proposed merger with Time Warner, say analysts.

AT&T

AT&T's proposed merger with Time Warner is now threatened after the U.S. Department of Justice filed an antitrust lawsuit Nov. 20 to block the deal, citing concerns about higher prices for consumers and less innovation if the merger is completed.

The action brought an immediate reaction from AT&T, which called the government's lawsuit wrong and vowed to pursue the case in the courts.

"This merger would greatly harm American consumers," Assistant Attorney General Makan Delrahim, of the DoJ's Antitrust Division, said in a statement. "It would mean higher monthly television bills and fewer of the new, emerging innovative options that consumers are beginning to enjoy."

The DoJ's action seeks an injunction from a federal judge to block the proposed $85.4 billion transaction, which was originally unveiled back in October of 2016.

Delrahim said the merger, if allowed, would also "enable the merged company to impede disruptive competition from online video distributors, competition that has allowed consumers greater choices at cheaper prices." The company would also "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," he said.

AT&T quickly disputed the DoJ's legal action, with David R. McAtee II, a senior executive vice president and general counsel for the company, calling the government's lawsuit a "radical and inexplicable departure from decades of antitrust precedent."

Instead, "vertical mergers like this one are routinely approved because they benefit consumers without removing any competitor from the market," McAtee said in his statement. "We see no legitimate reason for our merger to be treated differently."

The combination of AT&T and Time Warner would instead "help make television more affordable, innovative, interactive and mobile," he continued.

But the fight will not end here, said McAtee. "Fortunately, the Department of Justice doesn't have the final say in this matter. Rather, it bears the burden of proving to the U.S. 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."

AT&T has even posted a website to highlight the issues involved in the ongoing legal fight.

Analysts Weigh In on DoJ Lawsuit

Several IT analysts interviewed by eWEEK said the battle is just beginning as both sides stake their claims in the case.

"Clearly this is just another front in what looks like could be a lengthy war over what AT&T views as a strategic imperative, namely acquiring control over more content creation and distribution," Bill Menezes, an analyst with Gartner, told eWEEK. "We need to view anything either the company or the Justice Department says they are willing to do with a grain of salt as they continue to stake out their negotiating positions."

For AT&T, "it would not be surprising to see the company take its case as far as it can in court before retreating if it believes there's a rational case for consent decrees as a condition of approval, rather than having to divest properties," said Menezes. "The deal already has taken on political as well as legal overtones; rather than trying to handicap the outcome might be best just to get the popcorn and watch it unfold."

Charles King, principal analyst with Pund-IT, said the DoJ move appears to be a "remarkable reversal" from the business-friendly approach taken by the Trump administration so far in 2017. This reversal supports "conclusions that other motivating factors may be in play," said King. "Given the President's antagonistic relationship with CNN (one of Time Warner's properties), it's difficult not to believe that political issues are coloring Delrahim's judgement." 

At the same time, "Delrahim's insistence that the AT&T/Time Warner merger would somehow harm consumers suggests that he is either tone-deaf or incapable of understanding irony," said King. "That's because other controversial mergers, like T-Mobile and Sprint, that may impact end-customers negatively have encountered little, if any anti-trust opposition. Plus, actions by other Trump appointees, such as FCC chairman Ajit Pai targeting net neutrality, will be far more injurious to consumers."

AT&T appears to be "ready for action and loaded for bear" in fighting the government over the proposed merger, said King. "It's willingness to head to court in 60 days is remarkably aggressive and also suggests that the company believes it is on solid footing to take-on Delrahim and his team" and argue that it is being unfairly singled-out. "In any case, expect fireworks in the courtroom unless Delrahim backpedals or otherwise changes his tune."

Another analyst, Jan Dawson of Jackdaw Research, said he was surprised by the DoJ lawsuit "because this type of vertical merger typically hasn’t faced strong opposition" in the past "and because the Trump administration was considered to be generally merger-friendly."

The DoJ's position is "basically that companies shouldn't own both strong distribution businesses and strong content businesses, which is a completely new stance for the government to take and has no particular basis in law or precedent by itself," said Dawson. "But AT&T will also lean heavily on the fact that President Trump in particular has been very critical of CNN and said during the campaign that he would block the merger, something that had no legal basis and is likely to be held up by AT&T's lawyers as poor grounds for stopping a deal."

Rob Enderle, principal analyst of Enderle Group, agrees. "I think the bar for the DoJ for anti-trust is too high for them to reach," said Enderle. "This feels and looks more punitive and I doubt that will play well in the courts for the DoJ." 

AT&T announced its acquisition plans for Time Warner in October 2016 as a way for the two companies to bring content to customers on any screen as an alternative to existing cable providers, while also offering more choices to users seeking additional over-the-top and mobile viewing options.

If the deal is ultimately approved, the merger would join AT&T's wireless, broadband and satellite TV offerings together with entertainment content from Time Warner, including its TNT, TBS, CNN and HBO cable networks, as well as its Warner Bros. film and TV studio.