AT&T Inc. and the Justice Department are down to their closing arguments on whether the telecom giant should be allowed to buy Time Warner Inc. There are legitimate points on both sides, and the decision ultimately proffered by U.S. District Court for the District of Columbia Judge Richard Leon will place a giant gold star on the side that wins.
All antitrust eyes will be on those “gold star” arguments because they’ll have a major impact on M&A almost immediately. The DOJ has already started an in-depth investigation into Cigna Corp.’s proposed $54 billion purchase of Express Scripts Holding Co., a vertical deal like AT&T-Time Warner between non-rival companies.
It stands to reason the antitrust division is asking the same questions, and making the same arguments, about that transaction as it did when evaluating the AT&T and Time Warner merger.
The central premise of the DOJ’s case against the AT&T-Time Warner merger is that the combined company would have too much control over must-have content like HBO and certain sports channels. If Leon buys the premise that competitors like Comcast Corp. will be squeezed out because they can’t offer a similar suite of channels, the Justice Department would be in a stronger position to argue that Cigna-Express Scripts could squeeze out competing pharmacy benefit managers like CVS Corp.
Government antitrust enforcers are quick to remind anyone who draws such comparisons that each merger is unique, and thus, so is the legal and economic analysis. But DOJ attorneys won’t ignore the legal lessons that might lie in Leon’s decision. If the government prevails, there’s obviously something right about the DOJ’s reasoning that could be deployed in other cases. Vertical mergers everywhere, beware, especially if there’s an essential product or service involved.
A government win also will dampen enthusiasm for other media deals, like Walt Disney Co.’s proposed deal with 21st Century Fox.
AT&T and Time Warner CEOs both stressed in trial testimony that they have no choice but to merge if they want to effectively compete with new industry players like Amazon.com, Netflix Inc., and Google Inc. Forget Comcast, they say. The real threat is in those nimbler internet companies that can instantly give their subscribers what they want on any device.
If that thinking prevails, it will signal a seismic shift in how the antitrust legal world looks at tech markets. In traditional antitrust analysis, Google and AT&T don’t play in the same sandbox. One offers internet service, the other an internet product.
But major industry players say that analysis is too simplistic. New video platforms are causing more C-Suite headaches in cable TV than potential price wars with traditional rivals. If cable TV executives say streaming content is their true competitor, poaching customers and keeping future subscribers away, shouldn’t competition analysts view it that way too?
In the end, the legal and economic thinkers that help craft merger reviews will probably wind up defining a new market. It will likely be some combination of pay TV, internet service, and content delivery. But it might not be now. It could take years.
Whatever it’s called, and whenever it happens, it’ll be a victory for legacy companies like AT&T, which have long been arguing that companies like Google are more of a threat than regulators acknowledge.
The only question is whether AT&T will get a leg up before June 21, its deadline to close with Time Warner. Leon has said he hopes to issue a ruling before then. It will make for a fun summer.
On Monday, AT&T and DOJ attorneys will make their closing arguments before Judge Leon.
Also on Monday, DOJ antitrust chief Makan Delrahim will speak on a panel on Big Tech and antitrust at the Milken Institute Global Conference in Los Angeles.
On Wednesday, DOJ deputy assistant attorney general Andrew Finch and the Federal Trade Commission’s competition bureau director Bruce Hoffman will deliver remarks at Concurrences/Morgan Lewis conference in New York.
--“A fully confirmed FTC means the commission is back to its full strength as the cop on the beat to keep consumers safe and promote a vibrant free market.”
House Energy and Commerce Committee Chairman Greg Walden (R-Ore.) and Consumer Protection Subcommittee Chairman Bob Latta (R-Ohio) on last week’s Senate confirmation of five new commissioners. It’s the first time the FTC has had a full slate since August 2015.
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