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DOJ antitrust lawsuit seeks to block AT&T, Time Warner merger

DOJ officials say the proposed deal would harm competition, increase prices for consumers, and reduce innovation; AT&T CEO Randall Stephenson says the DOJ's argument "defies logic and is unprecedented"
Written by Natalie Gagliordi, Contributor and  Stephanie Condon, Senior Writer

The US Department of Justice (DOJ) is launching an antitrust lawsuit against AT&T in an effort block its proposed $85 billion takeover of Time Warner.

DOJ officials say the proposed deal would harm competition, increase prices for consumers, and reduce innovation in the media industry.

Time Warner's network portfolio includes HBO, CNN, TBS, TNT, and Cinemax, among others, and according to the DOJ's case, the "combined company would abuse its control to hinder its rivals by forcing them to pay hundreds of millions more per year for the rights to distribute those networks."

"The only appropriate action is to seek an injunction from a federal judge to block the merger," a DOJ official said. When pressed, the DOJ said the antitrust action was in no way influenced by the White House or President Donald Trump's ongoing feud with CNN.

In a press briefing Monday afternoon, AT&T chairman and CEO Randall Stephenson said the company has no intention to settle with the Department of Justice.

"Obviously, we're surprised to be here, and candidly, I'm a bit troubled by it," he said. The lawsuit, he said, "stretches the very reach of antitrust law beyond the breaking point."

Stephenson added that the lawsuit "comes at a time when the communications and media industries are undergoing rather radical change."

He cited major companies such as Netflix and Amazon that are distributing content to huge audiences, as well as the creation and distribution of content from tech giants Google and Facebook. By comparison, the suggestion that the combination of AT&T and and Time Warner would create unlawful media power "defies logic and is unprecedented," Stephenson said.

While AT&T does not intend to settle in court, Stephenson said the company has and will continue to offer "concrete solutions" that could resolve legitimate concerns. He declined to specify what kind of solutions AT&T would consider.

Stephenson did say that any agreement requiring the combined company to forfeit control of CNN, either directly or indirectly, "is a nonstarter."

"We cannot and we will not be party to any agreement that would give even the perception of compromising the First Amendment protection of the press," Stephenson said, addressing speculation that the lawsuit is related to President Trump's displeasure with CNN.

Whether the lawsuit is indeed related to CNN, Stephenson said, "Frankly, I don't know. But nobody should be surprised if the question keeps coming up because we've witnessed such an abrupt change in antitrust law here."

David R. McAtee, Senior EVP and General Counsel for AT&T, noted that the Justice Department hasn't tried a vertical merger case since the Carter administration. Moreover, it hasn't successfully challenged such a merger in the last 50 years.

Daniel Petrocelli, AT&T's retained counsel from O'Melveny & Myers, pointed out that the burden of proof falls on the Justice Department. AT&T stands ready, he said, to go to trial as quickly as possible and hopes to as soon as 60 days from now.

During trial, AT&T will be under no obligation to prove whether or not the Justice Department is pursuing this case because of President Trump's antipathy toward CNN -- or for any other reason. However, Petrocelli said, "if evidence does emerge it was pursued for some improper purpose, that obviously is not going to help the DOJ."

AT&T first announced plans to buy Time Warner last October in what would be one of the largest mergers in American history. At the time, AT&T said the combined company would strive to become the first US mobile provider to compete with cable companies nationwide with bundled mobile broadband and video. The telco also said the deal would usher in new forms of original content built for mobile and social platforms.

"This is a perfect match of two companies with complementary strengths who can bring a fresh approach to how the media and communications industry works for customers, content creators, distributors and advertisers," Stephenson said in a statement at the time the merger was announced.

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Despite scrutiny from US antitrust regulators, a handful of super-sized media mergers have succeeded over the last several years. AT&T acquired DirecTV in 2015 for $49 billion to become the nation's largest pay-TV subscriber. As for Time Warner, the media conglomerate is known for its ill-fated merger with AOL, which marked the end of the dot-com bubble and is widely considered one of the worst acquisitions ever. Time Warner Cable, a separate company, merged with Charter Communications in 2015.

With respect to the DOJ's argument that AT&T would raise prices for consumers, Stephenson on Monday said this defies "rational market thought." He noted how HBO, owned by Time Warner, already costs more on a monthly basis than a subscription to Netflix and other competing offerings. "Market dynamics wouldn't even allow for higher pricing even if you were to choose to do that," he said.

AT&T's intent, Stephenson continued, is to "take that content and broaden distribution, not limit distribution." Pointing to AT&T's experience with DirecTV, he said, "As you push things to mobile platforms, price points tend to come down."

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