What the DOJ AT&T-Time Warner Antitrust Suit Means for Consumers
Consumer Reports has no financial relationship with advertisers on this site.
More than a year after AT&T and Time Warner first proposed one of the biggest mergers of all time, the U.S. Department of Justice filed an antitrust lawsuit Monday challenging the deal, claiming that the combined company would lessen competition and result in higher prices for consumers.
According to the suit, if the $108 billion merger is allowed to proceed, AT&T could “use its control of Time Warner’s popular programming as a weapon to harm competition.”
The proposed merger would bring companies such as CNN, HBO, and DirecTV under one roof. The text of the DOJ complaint claims that consolidation would hinder the company’s rivals “by forcing them to pay hundreds of millions of dollars more per year for Time Warner’s networks." The DOJ also claimed that the new company would be able to wield its market power to slow the industry transition to new video distribution models.
This isn’t the first time the federal government has challenged this type of “vertical merger”—where a distributor buys the company that supplies a product, in this case, TV and movies. The DOJ initially filed a lawsuit in 2011 to block Comcast from purchasing NBC Universal, but ultimately allowed that merger to proceed under conditions that the agency designed to try to protect competition—a legally binding settlement called a “consent decree”.
The Case For and Against Consolidation
AT&T has long maintained that acquiring Time Warner would benefit consumers, saying that pairing Time Warner’s content with AT&T’s distribution will foster innovation, disrupt the current pay-TV industry, and make TV more affordable for consumers due to targeted advertising and the elimination of traditional all-in-one cable bundles.
When Consumer Reports reached out to AT&T for a response to the DOJ’s antitrust action, the company referred us to a statement that calls the complaint a “radical and inexplicable departure from decades of antitrust precedent.”
The DOJ’s suit has been complicated by president Donald Trump’s well-documented dislike of Time Warner’s CNN. Earlier this week, AT&T CEO Randall Stephenson referred to the issue as “the elephant in the room,” suggesting that the administration may be putting pressure on the DOJ.
Consumer advocates, including Consumers Union, the policy and mobilization division of Consumer Reports, applauded the DOJ’s action. In December of 2016, Consumers Union submitted a written statement to the Senate Judiciary Committee opposing the merger, as well as a letter to Attorney General Jeff Sessions in July of this year.
Jonathan Schwantes, senior policy counsel for Consumers Union, expressed concern about reports that the White House may have influenced the DOJ’s decision, but “the fact remains that there are serious, legitimate reasons this merger should be blocked,” he says.
“A merger between AT&T and Time Warner is a bad deal for consumers and the DOJ is making the right decision by rejecting it,” Schwantes says, adding that combining the two companies would “create a massive telecommunications and media company with its fingers in almost every pot of these increasingly connected industries.”
Other consumer groups agree. Harold Feld, Senior Vice President of Public Knowledge, sees multiple avenues of potential consumer harm from a merged AT&T-Time Warner. For example, the company, which would own DirecTV and its DirecTV Now service, could either refuse to deal directly with a rival like Dish Network’s streaming service, Sling TV, or raise the price for popular content to “a point where potential competitors can’t possibly hope to compete on price,” says Feld.
(Dish declined to comment to Consumer Reports on the DOJ’s lawsuit.)
As for past mergers that were allowed to go through under certain conditions, like the Comcast/NBC Universal deal, those companies failed to deliver on promises to protect consumers, advocates say.
“Comcast has found ways to get around those conditions, which are about to expire with nothing left to help protect consumers,” Feld noted.
In one example, which was noted by Consumers Union in remarks to the DOJ opposing Comcast’s proposed merger with Time Warner Cable in 2014, “Comcast favored its own news programming on CNBC and MSNBC over Bloomberg by exiling Bloomberg to a more remote channel.” Bloomberg was ultimately forced to litigate the issue for years in order to get Comcast to treat it fairly, CU noted.
Even the DOJ's antitrust division admits that consent decrees don't always do enough to protect consumers.
“At times antitrust enforcers have experimented with allowing illegal mergers to proceed subject to certain behavioral commitments. That approach is fundamentally regulatory, imposing ongoing government oversight on what should preferably be a free market,” Assistant Attorney General Makan Delrahim noted at the American Bar Association’s Antitrust Fall Forum last week.
Delrahim added that he expects the DOJ to cut back on the number of long-term consent decrees it has in place, and instead, “return to the preferred focus on structural relief to remedy mergers that violate the law and harm the American consumer.”
What Happens Next?
As with any court case, the two parties could find common ground and agree to settle, and that means a consent decree is still a possibility for AT&T-Time Warner as part of the terms of any such settlement. However, if AT&T and Time Warner can’t come to terms with the DOJ’s concerns, they may end up taking the issue all the way through the court system.
"Fortunately, the Department of Justice doesn’t have the final say in this matter,” AT&T said in its statement. "Rather, it bears the burden of proving to the U.S. District Court that the transaction violates the law. We are confident that the Court will reject the Government’s claims and permit this merger under longstanding legal precedent."
More from Consumer Reports:
Top pick tires for 2016
Best used cars for $25,000 and less
7 best mattresses for couples
Consumer Reports is an independent, nonprofit organization that works side by side with consumers to create a fairer, safer, and healthier world. CR does not endorse products or services, and does not accept advertising. Copyright © 2017, Consumer Reports, Inc.
