US Justice Department Sues to Block AT&T-Time Merger

DOJThe US Justice Department has sued to block AT&T's proposed merger with Time Warner.

According to the New York Times, this "may well be the antitrust case of the decade."

AT&T is proposing to pay $85.4 billion for Time Warner.

The Clayton Act

Section 7 of the Clayton Act prohibits mergers and acquisitions when the effect "may be substantially to lessen competition, or to tend to create a monopoly."

Mergers come in two basic kinds:  horizontal and vertical.

A horizontal merger is one between two companies that compete at the same level. For example, a merger between two companies that both sell bottled soft drinks at supermarkets would be a horizontal merger.

A vertical merger is one between two companies that don't directly compete with each other but provide goods or services at different levels of a supply chain.

For example, if a company that processes cotton mergers with a company that makes cotton clothing, that would be a vertical merger.

The Federal Trade Commission (FTC) reviews over 1000 merger filings per year. 95% of these don't present any anti-competitive issues.

Vertical Integration

The AT&T/Warner merger would be vertical, because AT&T provides communications services and Time Warner provides content (news and entertainment, including CNN, Warner Bros. movies, and HBO).

AT&T is one of the largest internet and telephone companies in the US. Since acquiring DirecTV in 2015, it is also the largest distributor of television in the US.

According to the Times, "Court challenges to vertical mergers on antitrust grounds have been extremely rare in recent decades."

The most recent case seems to have been in 1964.

According to Makan Delrahim, the assistant US attorney general for antitrust, the proposed merger would harm consumers:

It would mean higher monthly television bills and fewer of the new, emerging innovative options that consumers are beginning to enjoy.

According to the Times,

Combining AT&T and Time Warner in their present form would create a vertically integrated telecom-media goliath. It would have the market power to hurt competitors and consumers by raising prices of popular shows like “Game of Thrones” and channels like HBO, CNN and TNT. Smaller rivals like Dish Network and regional cable-TV companies might have no choice but to pay or risk losing their customers to AT&T.

President Trump announced his opposition to the merger during his campaign, saying that it was “a deal we will not approve in my administration because it’s too much concentration of power in the hands of too few.”

Selling Off Assets

In order to gain approval for the merger, one or both companies may need to sell off some of their assets.

According to the New York Post, the Justice Department is pushing for either Time Warner to sell Turner Broadcasting (which includes CNN) or AT&T to sell DirecTV.

President Trump has repeatedly accused CNN of peddling "fake news."

According to the Times,

President Trump’s hostility toward the news media, and CNN in particular, has been so extreme that it is calling into doubt whether his appointees at the Department of Justice can fairly evaluate a merger involving the cable news channel’s parent company, Time Warner, and AT&T.

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