UPDATED with additional court filings. In the latest salvo in the two-year-old saga of AT&T’s acquisition of Time Warner — which has technically closed but still faces a legal challenge — the Department of Justice systematically blasted the company’s counter-claims.
Regulators’ 35-page response to AT&T’s reply brief (read it HERE) is broken into chapters with headings that start “AT&T Ignores …,” “AT&T Fails …” and “AT&T Mischaracterizes …” In a statement summing up the reply brief, Delrahim called AT&T’s previous response to the government’s appellate complaint “a revisionist, 58-page summary” of a federal judge’s favorable ruling in June. Overlooking “economic and logical errors in the decision,” the statement continued, “AT&T never resolves the district court’s erroneous rejection of the economics of bargaining and the principle of corporate-wide profit maximization, which are the basis of our appeal.”
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A footnote in the DOJ’s brief is perhaps the most provocative part of the document. It points out that AT&T CEO Randall Stephenson during his deposition in February recalled floating the idea of divesting CNN (President Donald Trump’s bête noire) during a meeting with the DOJ to see if that would prompt regulators to finally “wave through” the long-delayed transaction. That hypothetical contrasted with his statements at public events and in press reports that he had never proposed getting rid of CNN despite suspicion that the entire deal was being squeezed because of Trump’s distaste for CNN.
DOJ antitrust chief Makan Delrahim (a Trump appointee) told Stephenson that a divestiture of CNN would not change regulators’ view, according to a deposition transcript. Affidavits from Delrahim and a top lieutenant contained in an additional trove of legal documents released last night affirm the account in Stephenson’s deposition. A third affidavit, by Time Warner board member William P. Barr, who was also present for the DOJ meeting, does not mention CNN specifically but says “multiple remedies” proposed by AT&T and Time Warner were discussed.
In June, U.S. District Court Judge Richard J. Leon handed AT&T a sweeping victory, allowing the $79 billion deal to close and warning the DOJ not to bother appealing given what he saw as the tenuousness of its argument. A month later, the agency filed an appeal anyway, which is now before the D.C. Circuit. A panel of three judges is expected to hear the case in the coming weeks. AT&T executives have predicted a resolution by January.
The DOJ brief tackles a range of issues it sees as central to its contention that the merger is harmful to both rivals and consumers. It scoffs at AT&T’s attempt in its previous brief to brush off the notion of the merged AT&T possibly being able to benefit from controlling both a major programmer, Turner Broadcasting, as well as the No. 1 satellite distributor, DirecTV.
“There is no merit to AT&T’s hyperbolic contention that the economics of bargaining predicts that any vertical merger in the pay-television industry will result in higher programming prices,” the brief asserts. “As the government showed, for a merger to lessen competition substantially … the programmer must have the type of content that can drive consumers who lose it to switch, and the distributor must earn a margin on subscribers gained from the switch. Most vertical mergers do not meet this standard. This one does.”
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