Photo: AT&T

On Tuesday, a federal judge ruled that AT&T has the all clear to merge with Time Warner, paving the way for a media-gobbling merger frenzy. It didn’t have to be this way, but bizarre circumstances and inadequate arguments from the Department of Justice’s Antitrust Division have, yet again, given corporations more power.

U.S. District Judge Richard Leon gave his ruling to the two parties and reporters behind closed doors in a Washington, D.C., courthouse this afternoon. The New York Times reports the judge “said the Justice Department had not proved that the telecom company’s acquisition of Time Warner would lead to fewer choices for consumers and higher prices for television and internet services.”

From the beginning, AT&T’s attempt to purchase Time Warner for $85.4 billion has been a confusing case of misinformation, strange bedfellows, and the failure of our regulatory system to protect consumers. Before the 2016 presidential election, Hillary Clinton expressed reservations about the merger when it was merely a proposal. She told reporters that it “raises questions and concerns” and that she would “expect the government to conduct a very thorough analysis before making a decision.”

On the campaign trail, Donald Trump was more forceful with his opinions about the merger. At a rally, the future president expressed his reluctance to approve such a deal because it would focus “too much power in the hands of too few.”

This was a little out of step with his Republican colleagues who generally tend to believe businesses should be able to be as big as they can be and regulations are a curse. Still, analysts expected a more greed-friendly regulatory environment under Trump, and his appointment of Makan Delrahim as the DOJ’s top antitrust cop was a good sign the administration would let corporations get away with damn near anything. The New York Times characterized Delrahim’s philosophy as “a monopoly is perfectly legal until it abuses its monopoly power.” In 2016, Delrahim told reporters that he didn’t see the potential AT&T deal as “a major antitrust problem.”

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Then things got weird. Delrahim suddenly decided that the merger was bad for consumers, would cause customers’ bills to rise, and would reduce competition in the media sphere. His division of the DOJ decided to sue AT&T and asked the judge to force a sell-off of either AT&T’s DirectTV division or Time Warner’s Turner Networks.

Trump’s obsession with CNN and what he considers its unfair news coverage of his administration cast a shadow over the DOJ’s decision. CNN is owned by Turner, and the president’s air of corruption led many to believe he was simply stepping in to block the deal in order to inflict harm on the news network. Suddenly, liberals like Senator Amy Klobuchar, who previously opposed the merger, were more concerned that the president was abusing his powers to grind out a vendetta. Aside from Trump talking shit, no evidence of wrongdoing on the Trump administration’s part has been presented.

This idea has tainted the public perception of the case ever since. While the average American isn’t likely to be particularly concerned with a telecom merger, all controversies involving Trump generate attention.

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The public perception was further shaped by pundits continually saying that vertical mergers—mergers between companies that aren’t direct competitors—are rarely contested. It’s true that legal opposition to vertical mergers isn’t as common as cases against the combination of two direct competitors, but it still happens often. Last year, researchers at Georgetown University put together a list of 52 enforcement actions the DOJ and FTC took against vertical mergers between 1994 and 2016. One example of it completely blocking a vertical merger came in 1998, when the DOJ successfully blocked the merger of Lockheed and Northrop even though they worked in distinctly different areas of the aeronautics industry.

The confusion around this case is disappointing because its fundamentals were in the DOJ’s favor. The official complaint points out that “AT&T/DirecTV is the nation’s largest distributor of traditional subscription television. Time Warner owns many of the country’s top TV networks, including TNT, TBS, CNN, and HBO.” The argument it makes is that the merger of these two companies would result in AT&T being able to “use its control of Time Warner’s popular programming as a weapon to harm competition. The proposed merger would result in fewer innovative offerings and higher bills for American families.”

In court, reports painted a picture of the DOJ trying to prove its case by relying on expert witness testimony attempting to put a hypothetical dollar count on how much the deal would cost consumers. The argument was that AT&T would strong-arm its cable competitors into paying higher carriage fees for its network content. The dollar amount one witness put on the increase was $463 million per year or 45 cents per month per pay-TV subscriber. This figure’s reliability collapsed under cross-examination.

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This is a really narrow way of looking at the merger. As the FTC writes in its overview of antitrust laws, “Section 7 of The Clayton Act prohibits mergers and acquisitions where the effect may be substantially to lessen competition or to tend to create a monopoly.” The way regulators and courts are treating antitrust cases, unfortunately, is more like a murder case. Though the DOJ may have done a poor job making its arguments, we shouldn’t have to prove beyond a shadow of a doubt that this merger will cause X amount of damage to consumers in the future.

We haven’t been able to read Judge Leon’s opinion in the ruling yet. But broadly speaking, the argument that owning a cable network and the content that other cable networks are expected to carry gives AT&T too much power makes sense. Immediate negotiations of carriage fees are one example, but with cord-cutting on the rise, AT&T will have more power to charge streaming services higher prices for the content people expect as well. And assuming the repeal of net neutrality stays in place, AT&T has the power to throttle traffic to competitors and prioritize speeds to its own services or those who pay the toll. The Clayton Act’s burden of proof is only that the deal “may be substantially to lessen competition.” The possibility is clearly present, and that’s all we, as customers, need to say this deal’s unacceptable. It’s too bad the courts tend to have a higher bar for proof of the possibility, but there is some movement building to change the language from “substantially” to “materially” in order to better clarify the law.

As Harold Feld, Senior Vice President of the policy non-profit Public Knowledge, recently explained, arguing against vertical mergers in court is generally considered to be tough. So, the DOJ has taken up the tactic of negotiating conditions before the deal closes. In 2011, the FTC and DOJ imposed conditions on Comcast in order to gain approval for its merger with NBCUniversal. Since then, Comcast has been accused of and admitted to violating those conditions on multiple occasions in exactly the ways that harm competition that critics feared. In today’s case, AT&T rejected the DOJ’s conditions and the judge ruled that its free to go forward with no limits on its Time Warner deal.

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AT&T’s CEO has said the company needs this merger to compete with tech companies like Amazon. Despite the fact that AT&T controls the tubes that are Amazon’s lifeblood, this argument just demonstrates the problem of companies being allowed to grow too large. One company gets so big that a few others can claim they need to be bigger, then a smaller number survive and argue they need to merge to compete. It’s a cycle that’s easily understood, and demonstrably leading toward a handful of companies owning everything. We shouldn’t be debating which mergers are least likely to fuck us, we should be deciding how to break up these companies that are impossible to compete with.

Analysts expect today’s decision to clear the way for Disney or Comcast to buy 21st Century Fox. And though we’ve heard little from the DOJ about Sprint and T-Mobile’s upcoming merger, it seems especially unlikely that a gun-shy Justice Department will want to go after that deal after this defeat. God knows what the masters of the universe are thinking this evening as they realize they have a blank check for the foreseeable future.

[The New York Times]

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