AT&T toppled the major obstacle standing in its way of becoming a telecom-media titan after a federal judge ruled on Tuesday that the government could not block its $85.4 billion takeover of Time Warner.
Judge Richard J. Leon of United States District Court in Washington issued a massive 172-page opinion explaining the ruling. Here are five key points.
1. The opinion was narrowly focused on antitrust law.
For decades, antitrust law in the United States has exclusively focused on consumer welfare. Often that means nothing more than making sure a deal will not lead to higher prices or fewer choices for consumers. While critics say this focus is too restrictive and urge the U.S. to take on a broader notion of competition regulation, the head of the Justice Department’s antitrust division defended the traditional approach in a speech several hours before Judge Leon’s decision. The government never pressed for a broader concept of antitrust in the case against AT&T.
The judge’s opinion reflects that narrow focus. He said the Justice Department had not proved that AT&T acquisition of Time Warner would lead to fewer choices or higher prices for consumers.
“Ultimately, I conclude that the Government has failed to meet its burden to establish that the proposed ‘transaction is likely to lessen competition substantially,” Judge Leon wrote.
AT&T’s lawyers claimed after the decision that the judge’s ruling was broader, calling it “a testament to the wisdom of the combination of these two great companies.” But that goes far beyond anything argued or decided in the legal case.
Similarly, the case was not about concentrating the power to distribute news and entertainment in the hands of a few corporations, creating ‘too big to fail’ combinations of media and telecom that would require bailouts should they fail financially, or narrowing the channels for journalists, artists, and other creators to get their products to the public. If those concerns are to be addressed, it will likely require new legislation rather than a case brought under the antitrust statutes.
2. AT&T won, in part, because the judge thinks CNN and other Turner content is not that important.
Much of the public debate about the merger has focused on CNN, a network owned by Time Warner through its Turner division. CNN has been a frequent critic of President Donald Trump, and vice-versa. When then-candidate Trump announced his opposition to the merger, he singled out Time Warner’s ownership of CNN as part of what would put “too much power in the hands of too few.”
In Judge Leon’s courtroom, the government made a narrower version of the president’s argument. According to the government, ownership of CNN and other Turner networks would allow AT&T to force other cable providers to pay higher fees or risk losing ‘must have’ content. This would give AT&T an anticompetitive advantage, the government argued.
In one document, a Turner executive wrote that ““Time Warner would be a weapon for AT&T because AT&T’s competitors need Time Warner programming.”
Judge Leon disagreed–as did AT&T, apparently. In his opinion, he writes that CNN and Turner are not really all that important.
“Based on the evidence, I agree with defendants that Turner’s content is not literally ‘must have’ in the sense that distributors cannot effectively compete without it. The evidence showed that distributors have successfully operated, and continue to operate, without the Turner networks or similar programming,” Judge Leon wrote. “I therefore give little credit to blanket statements by third-party competitor witnesses indicating that the entire ‘viability of [their] video model’ could depend on whether they offer Turner programming.”
3. Judge Leon didn’t think the evidence that AT&T executives discussed the anticompetitive potential of the acquisition was enough to prove that AT&T would act anticompetitively.
During the trial, the government produced documents from AT&T and statements from AT&T chief Randall Stephenson that showed AT&T knew that combining the Time Warner content with AT&T’s distribution would make it possible to withhold content from other providers in order to benefit AT&T’s platforms.
Despite this evidence, Judge Leon thought the government failed to show that AT&T was likely to engage in that conduct.
“But evidence indicating defendants’ recognition that it could be possible to act in accordance with the Government’s theories of harm is a far cry from evidence that the merged company is likely to do so (much less succeed in generating anticompetitive harms as a result),” Leon wrote.
Time may tell if the government or Judge Leon is right about the likelihood of the powerful merged Time Warner-AT&T acting on the possibilities its executives discussed. Or perhaps not. This may be the weakest part of Judge Leon’s argument and one likely to be challenged on appeal.
4. The decision will likely set off a stampede of media, telecom, and tech mergers.
Several deals already underway were more or less on hold waiting for this decision. Now that AT&T has won, the race among its competitors to achieve similar size and scope will be one. Verizon has been courting CBS, prompting CBS to resist the overtures of Viacom. Disney has bid for 21st Century Fox’s entertainment assets. Comcast, which had earlier bid for the Fox assets but lost out to Disney, is expected to renew its pursuit now that AT&T has won.
But the dealmaking likely won’t end there. Apple may look to acquire a content production business, perhaps a movie studio. Facebook is in the early stages of getting into producing news content and the approval of the AT&T deal may whet its appetitive to buy a cable news network. Netflix may look to expand beyond video into other digital offerings, which could include everything from video games to news production. It’s anyone’s guess what Amazon might want to buy–and all those guesses are likely right.
5. It sounds like the government may appeal.
While AT&T scored a massive and surprisingly solid victory on Tuesday, the fight may not be over. Makan Delrahim, the government’s top antitrust lawyer, said on Tuesday that he was disappointed with the decision and would take time to review the lengthy opinion before deciding whether to ask the court to stay its ruling pending an appeal.
“I’ve taken an oath to uphold competition,” Delrahim said. “We are going to take the next steps as necessary.”
Delrahim has been a staunch advocate of the traditional approach to antitrust enforcement, defending its focus on consumer welfare. Critics have described this a “straitjacket” that leaves the government powerless in the face of machinations of enormous corporation combinations in the digital era. In some ways, Judge Leon’s opinion allowing the AT&T merger to go forward is a vindication of Delrahim’s critics.
Which may mean he has all the more reason to appeal the case and prove that antitrust is up to the task of policing competition in the digital age.
The case is United States v. AT&T, No. 17-cv-2511 in the U.S. District Court for the District of Columbia.