DirecTV Case Doesn’t Help AT&T’s Merger Review

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By Eleanor Tyler

Nov. 7 — The Justice Department’s recent complaint against DirectTV and AT&T Inc. for collusion regarding televising baseball games could hinder settlement negotiations should regulators challenge the telecommunications giant’s bid for Time Warner Inc.

Collusion is more likely in a concentrated market, and the Nov. 2 complaint notes DOJ’s concern about the media industry as of 2013, before AT&T bought DirectTV and Charter Communications Inc. bought Time Warner Cable Inc.

The prospect of even greater consolidation that would result from AT&T’s proposed $85.4 billion merger with Time Warner may make DOJ even more wary of negotiating a settlement for any competitive problems its review of the deal might uncover. The DOJ can approve a merger without conditions, agree with the parties to permit the deal with conditions enforced by a court order, or sue to block the merger. With a lawsuit already pending alleging that the few parties in pay television have a history of collusion, the DOJ may be leery of agreeing to conditions on a merger that may give AT&T and DirecTV even more market power.

No Trust

The ongoing litigation between AT&T and the DOJ highlights problems in the industry and frames AT&T’s relationship with the agency in an adverserial light before negotiations on the merger even get rolling. The dispute “at least takes some potential avenues for approving the merger off the table,” according to Michael A. Carrier, a professor at Rutgers Law School in Camden, New Jersey. Specifically, it reduces the kind of trust needed to negotiate a settlement in the merger challenge, and shows the cost and difficulty of trying to police any conditions DOJ might impose in an industry already prime for competitive abuse.

“AT&T does not look good coming out of this,” Carrier told Bloomberg BNA. If behavioral conditions can’t be enforced against a company like AT&T, and structural conditions are hard to impose on a rapidly shifting market, the DOJ might be more likely to block the deal, he said.

The AT&T and Time Warner deal is a vertical merger of players in different parts of the media market, which typically doesn’t raise competition concerns. That may not be true for this deal because there is already public outcry about big data and consolidation in the industry, Carrier, co-director of the Rutgers Institute for Information Policy and Law, said. “The outcome might be different.”

Opposition to the deal has popped up “everywhere,” Paul Verna, a senior analyst with research firm eMarketer told Bloomberg BNA. The merger is advantageous for the two companies—each has something that the other needs as consumers move to viewing content on digital platforms—but it faces a “tough road” to regulatory approval because of skepticism about media players, net neutrality and favoring owned content.

“As an analyst I think it’s a great deal for both companies; as a consumer, I’m skeptical,” he said.

John Bergmayer, senior counsel at media watchdog Public Knowledge, said in a statement on the proposed merger that there are good reasons to be skeptical that further consolidation in the communications industry could be good for consumers.

Vertical integration between programming and distribution in particular raises a number of issues, he said. “DirecTV, for instance, might favor Time Warner content, crowding out or refusing to carry alternative and independent programming that viewers might prefer.”

On the other hand, AT&T might disadvantage DirecTV’s competitors in accessing Time Warner content or give preferential treatment to its own programming and services on its broadband networks, Bergmayer said.

Data Angle

The merger could also increase AT&T’s opportunities for data collection, “which has relevance to FCC privacy initiatives,” he said. Similar self-dealing and discrimination issues were central to the Federal Communications Commission’s review of similar deals in the past, such as Comcast’s acquisition of NBC Universal, he noted.

Data collection and its impact on market power is an issue, but does not fit neatly into the antitrust regulator’s toolkit, Carrier said. “There is just this brooding concern.”

Verna agreed that, with this merger with Time Warner, AT&T leapfrogs Verizon Inc.'s market forays into content and becomes a media conglomerate more on Comcast’s scale.

But DOJ’s allegation that AT&T’s DirecTV was already ignoring the antitrust laws is unlikely to smooth the deal’s path to approval.

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

To contact the editor responsible for this story: Tiffany Friesen Milone at tmilone@bna.com

For More Information

DOJ’s complaint against DirecTV and AT&T is at http://src.bna.com/jOh.

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