Transactions

AT&T's Stephenson: DOJ Took 'Meat Ax to Rule of Law'

But telco CEO has some encouraging words for other Trump Administration moves 11/29/2017 1:39 PM Eastern

AT&T chair/CEO Randall Stephenson said the Justice Department has taken a 'meat ax' to the rule of law with its suit against the AT&T-Time Warner Inc. merger after signs of refreshing regulatory certainty out of the Trump Administration.

Related: DOJ Suing to Block AT&T-Time Warner Deal

That came in a speech at The Economic Club in New York Wednesday (Nov. 29).

Stephenson said he is happy with the proposed corporate tax cut and with the Pai FCC's proposed rollback of net-neutrality regulations, but then said in the midst of that came Justice's decision to file suit against the kind of vertical merger -- like Comcast-NBCU -- that has historically gotten a government OK with some behavioral conditions.

"Vertical mergers have been evaluated in a particular way and there have been remedies and guidelines on what remedies are available  for these types of mergers for 50 years," Stephenson said.

Related: AT&T, Time Warner Accuse DOJ of Selective Enforcement

Comcast-NBCU had a number of them imposed by Justice, though the new head of the antitrust division, Makan Delrahim, signaled a couple weeks ago that he favors divestitures over behavioral conditions he said were tough to monitor.

But Stephenson said the law has been "interpreted, implemented and executed" in that way, and "to suddenly wake up on a merger that is less complicated than one that was already approved, NBC-Comcast, one that is less complicated and has less market power issues, and to go from very targeted structural remedies to a meat ax approach of just blocking the thing, just strikes at the heart of rule of law."

He said in business, rule of law is everything. That is because if businesses don't know how their M&A is going to be evaluated, it is really hard to run a capital-intensive business like AT&T. He said it is hard to give a board of directors a sense of how a deal would be received.

Stephenson would not say whether at some point AT&T and Time Warner would give up the deal if, for example, Justice continued to press its case if it lost in the D.C. appeals court where the suit has been filed.

Justice said the combination of AT&T and DirecTV with Time Warner's programming assets, like Turner Sports, HBO and CNN, with an emphasis on the first two, would give it the incentive and opportunity to discriminate against its rivals.

AT&T has proposed its own behavioral condition -- guaranteeing arbitration of any discrimination complaint--that would appear to address the government’s central concern. Specifically, AT&T told a federal court this week, "if a distributor reaches an impasse with AT&T/Time Warner over access to Turner content, the parties will submit their respective “best offers” to the arbitrator, and the arbitrator will choose the one that best represents fair market value, subject to a right of judicial review under the Federal Arbitration Act."

Related: Analysts Say Turner Arbitration Offer Blunts Government's Objections to AT&T-TW Deal

Asked to assess the Trump Administration generally, he said he is probably one of his biggest defenders in terms of "rationalizing" the regulatory burdens. He said there has been as predictable regulation as he has had in his career. "From a businessperson's standpoint, decisionmaking has been simplified" he said.

He cited tax reform as a big deal, either the House or Senate bill, both of which reduce the corporate tax rate from 35% to 20%.

But then there was the Justice suit to take some of the bloom off that rose. "Now I have come into this situation with the Department of Justice where suddenly what I contend is a really excellent environment from a regulatory predictability standpoint, and now I suddenly find myself from and M&A standpoint what is predictable, what can my board plan on. So, I have been thrown a curveball here that I am trying to process here."

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