AT&T, Time Warner Take Risks in Answering Justice Dept.

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By Eleanor Tyler

AT&T Inc. insists that the Justice Department must treat its pending $85.4 billion merger with Time Warner Inc. exactly like the 2011 merger between Comcast Corp. and NBCUniversal — approve it with conditions.

But antitrust law says AT&T doesn’t get to make that call, so posing the argument is risky. “I believe the argument is flatly wrong,” Cleveland State University antitrust law professor Christopher Sagers told Bloomberg Law. “It is not legally relevant to any merger case, or indeed any law enforcement action of any kind, how the government acted in prior cases.”

In AT&T’s Nov. 28 answer to the DOJ’s recent lawsuit to stop the merger, AT&T and Time Warner said the government has no case because Time Warner will contract with outside distributors on the same terms that Comcast did in order to buy NBCUniversal. The parties have already offered distributors irrevocable contracts allowing arbitration of any disputes over access to Turner Broadcasting content if their merger goes through. The pledge is proof that “the government’s demand to block this merger is unwarranted,” the filing said.

The answer is AT&T and Time Warner’s first formal response to the Justice Department complaint. The DOJ says the tie-up would harm competition in distribution markets, stifle innovation, and raise consumer costs. AT&T replied that the government is departing from “established antitrust precedent” by suing to block a deal between companies that don’t directly compete.

Even though antitrust law allows the government to review each merger without regard to past deals, basic legal reasoning might require it to consider similar transactions. Hal Singer, a principal economist at Economists Incorporated and an adjunct professor at Georgetown’s McDonough School of Business, said equal treatment under the law should require AT&T-Time Warner to be treated the same or more leniently as Comcast-NBCUniversal.

AT&T has a smaller downstream market share than Comcast, and AT&T is acquiring content that is less “must-have” than Comcast, he told Bloomberg Law. Time Warner owns CNN and HBO, which produces the blockbuster TV series “Game of Thrones.” Comcast-NBCUniversal’s “must-have” content partially lies in NBC Sports, which produces the Olympic Games and is the home of Sunday Night Football.

“The likelihood that AT&T would engage in complete foreclosure of its distribution rivals is much smaller in this case,” Singer said.

Novel Approach

AT&T took some novel positions in its reply, Sagers said. “I’ve never heard of a defendant effectively proposing a settlement in its answer denying charges.”

It’s a dangerous gambit to link AT&T-Time Warner to Comcast-NBCUniversal, he said. That deal still remains controversial even though the government imposed “substantial injunctive remedies.”

Merging parties like Comcast also don’t negotiate settlements with antitrust regulators out of charity, he added. “They do it because they think if they go to court, they will lose.”

Singer said the Comcast-NBCUniversal merger pushed the limits of “behavioral remedies,” or promises by the companies. The DOJ’s current antitrust head, Makan Delrahim, has stated that the department will avoid seeking those types of conditions because they effectively cause regulators to police the market.

Replay?

Besides AT&T and Time Warner’s assertion that their case should play out precisely like Comcast-NBCUniversal, there other noteworthy overlaps.

First, the judge assigned to the case, Richard Leon of the U.S. District Court for the District of Columbia, also heard the Comcast-NBCUniversal case. The DOJ settled its dispute about the merger, and Leon had to decide if the settlement met the public interest. He imposed additional obligations on the companies as a result of his review. Comcast pledged not to discriminate against other distributors for NBCUniversal’s content and agreed to an arbitration method for complainants.

There have since been several complaints from distributors about Comcast breaking its promises to the DOJ. Singer says that shows the remedies are working, but other antitrust lawyers point to the complaints as evidence that they don’t work.

AT&T argues that because Time Warner will agree to the same restrictions Comcast did, the DOJ should have no valid concerns about its merger. Judge Leon, who was skeptical of the behavioral remedies in the Comcast deal, must evaluate whether similar precautions will be sufficient in today’s distribution markets and for this particular merger.

Second, the lawyer representing Time Warner, Christine Varney, was the DOJ’s antitrust chief when Comcast and NBCUniversal were permitted to merge. She was appointed to head the DOJ antitrust division by President Obama in 2009 and left in 2011 to join the law firm Cravath Swaine & Moore LLP.

Next Steps

AT&T is pushing for a 10-day trial starting Feb. 20, just 90 days after the DOJ filed its complaint. The DOJ says that timetable would undermine the government’s trial preparation and make it impossible for it to adequately plead its case. The government suggests a trial of at least 15 days starting May 7.

Leon has set a Dec. 7 hearing to begin addressing scheduling and procedure for the case.

To contact the reporter on this story: Eleanor Tyler in Washington at etyler@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

For More Information

AT&T's Answer is at http://src.bna.com/uy7.

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