Feds Lay Out Court Strategy for Blocking AT&T-Time Warner

Says merger would threaten competition, particularly from OTT

The Department of Justice has outlined to a U.S. district court its legal strategy for blocking the AT&T-Time Warner merger, in preparation for the trial that begins March 19.

They told the U.S. District Court for the District of Columbia, according to a pre-trial brief, that the government will prove that if AT&T buys Time Warner, consumers will pay hundreds of millions of dollars more "to watch their favorite programs on TV," and that because they will do that -- as AT&T and Time Warner have themselves said happens (in in the context of another merger) -- the deal's effect “may be substantially to lessen competition" -- particularly from emerging online platforms -- because "prices for current services will go up and development of emerging competition will slow down."

That potential anticompetitive effect is billed by DOJ as the kind of threat of significant harm that violates Sec. 7 of the Clayton Act.

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"The proposed merger would increase already significant entry barriers by removing current incentives for AT&T, with its approximately 25 million video subscribers, to carry new television networks," DOJ told the court. "There is no indication that the increased prices for Turner content that will result from the merger will incentivize entry. Indeed, over the last five years, Turner has been able to impose substantial fee increases for its primary networks on its MVPD distributors, without significant entry."

The Justice Department said it will make that case using "internal documents from the files of defendants and others, informed opinions from expert witnesses who have carefully studied the industry generally and this transaction in particular, and, most importantly, multiple knowledgeable industry participants who work in the marketplace day in and day out."

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And while Justice said it offered to cure the deal's problems with "structural" conditions -- divestitures -- and AT&T-Time Warner offered to cure the deal with behavioral conditions -- baseball-style arbitration for program access complaints -- they were unable to reach agreement.

Of AT&T-Time Warner's offer of outside arbitration, DOJ  called it a "fundamentally flawed effort to undermine the free market solution by merely offering to behave in a way that is contrary to the merged company’s natural business incentives and interests," and told the court that once the government has determined potential harms, how it chooses to cure them, by structural or behavioral conditions, is purely its prosecutorial discretion.