The Industry

The Case for Fearing the AT&T–Time Warner Merger

A former DOJ antitrust lawyer explains how a union between a telecommunications giant and a media giant could harm consumers.

AT&T, Time Warner Inc.
Photo illustration by Slate. Photos by Kena Betancur/AFP/Getty Images and Brendan McDermid/Reuters.

The world is still waiting for the verdict in the trial over AT&T’s massive $85 billion proposed merger with Time Warner. The deal was challenged by the Department of Justice, and it’s poised to be a landmark antitrust case. It’s continued to make headlines after it was revealed that AT&T had hired President Trump’s personal lawyer, Michael Cohen, to advise it on how to work with the administration, including on antitrust issues.

What’s at stake with this trial, and why was the DOJ opposed to this merger? On last week’s episode of If Then, Slate’s technology podcast, we turned to Gene Kimmelman, the president and CEO of the left-leaning interest group Public Knowledge who previously served as chief counsel for the DOJ’s antitrust division. He has also served as chief counsel for the antitrust subcommittee of the Senate Judiciary Committee.

You can read an edited version of our conversation with Kimmelman below, or listen to the full discussion. To get the latest episodes of If Then, subscribe to the show via Apple Podcasts, Stitcher, Google Play, or wherever you get your podcasts.

April Glaser: Tell us what the trial was about and what the DOJ opposed here with the merger?

Gene Kimmelman: You have to think about what the cable, satellite video market, and broadband market looks like today for most consumers. How many choices do you have in your community to get a big package of video programming from cable or satellite and your high-speed internet service? Most people only have one or two, and if you’re really lucky, three choices. AT&T happens to be one of those [companies] because it both owns pole telephone wire systems that have been upgraded to provide broadband, a service called U-verse, but they also bought DirecTV, major satellite provider of big packages of video service. So they are one of the biggest players in the broadband and video distribution system right next to Comcast.

What AT&T here is buying with Time Warner is a major studio and a lot of television programming, a lot of channels—TBS, TNT, CNN, HBO. They’re buying content. It’s considered a vertical transaction. Time Warner and AT&T aren’t in the same market, doing the same things; they’re adjacent to each other and complement each other. When you want to get a big package of TV service, or if you want to just get HBO, you most likely need to do it through AT&T. So they’re emulating what Comcast did in a market that has very few players.

The Justice Department has looked at this and said, with a second company vertically integrated, the two were a danger to actually coordinate, not quite collude, but something similar to it, where they are each other’s biggest suppliers and customers. They know each other’s price, terms, and conditions. There’s nothing illegal about that. They have to deal with each other in the marketplace, but yet they’ll know everything about each other, and they’ll kind of be able to set the standards for prices, terms, conditions for video distribution, and importantly for whether online media can compete effectively against traditional cable and satellite.

Glaser: We’re talking about one company not only owning the pipes that deliver you content, but also owning the content that travels over those pipes. And when it’s just two companies in a single market, they can say, “Why are we charging $50? Why don’t we both just charge $70?” And [although] that’s not necessarily competition, that’s not a healthy market that will really give consumers the best way to get their information.

They won’t necessarily say to each other, “Let’s charge $70.” But you’ve experienced this with airlines, too—all of sudden one charges a baggage fee, and the next day or a week later, another one charges a baggage fee, and it’s the exact same price. Did they ever talk to each other? No, they didn’t have to, because they can kind of follow each other and there’s nobody else in that market to challenge them. So it’s that kind of collusion that you worry about.

Will Oremus: And of course you’re also worried if you’re one of those content producers that is not merged with one of the pipe owners, right? You’re worried about them prioritizing their own entertainment or information content somehow.

Absolutely, that’s right. If you own a competing news channel, or you own a competing movie channel, or a different entertainment channel and you want to be placed well on their system, you want to get fair payment for your content. You also want to be able to distribute your content online with other distributors, but you might be beholden to a company that has control over the transmission pipe and a substantial number of the customers you need to reach. So there’s a big question in this case, as there was with Comcast, of whether AT&T with this ownership of programming would have both the opportunity to discriminate against others and the incentive to favor themselves and harm their competitors. The Justice Department said they would, many of us on the outside looking at it agree with that, and obviously AT&T and Time Warner are vigorously challenging that.

Glaser: Companies like AT&T and Comcast have argued in the past that they need to change their business model so they can compete with the behemoths like Google and Facebook. AT&T and Comcast are not in the top five most powerful companies in the world, like these internet companies are, and they are essentially advertising companies that work on massive amounts of user data collection. Can you speak a little bit about how these internet providers are seeking to compete with Google and Facebook?

This is one of the most important decisions the judge has to face. I believe that, very cleverly, the AT&T and Time Warner lawyers have tried to pull the wool over the judge’s eyes a little bit here by talking about the enormous other players. When they say “in the market,” it actually is a sleight of hand, because it’s not in the market—Google, and Amazon, and Facebook are big tech companies. They are dominant players in their own right for what they do, but they do not offer us 250 channels of video, and pay-per-view, and movie channels, and they don’t offer the broadband themselves.

There was a major New York Times story about how we now have more online advertising than we have in traditional television, so the world must be changing. But what the companies have tried to convince the judge is not what the actual consumer faces every day. In the real world, you have to buy from the transmission company, AT&T or Comcast, or a charter, or Verizon. There’s no place else to go. You can’t directly to Google and Amazon and say, “Deliver me those 250 channels.” That doesn’t work.

The reality is that you’re beholden to one of these companies like AT&T and Comcast. We’re hoping the judge will see through that and just see where is the real gatekeeper role, where is the real power in the marketplace, not who’s the richest, who’s the biggest somewhere else in the world, but where do consumers feel constraints about choice, price, and quality offerings.

Glaser: Where do you expect the judge to land on this? I was not expecting Trump’s antitrust division of the DOJ to oppose it like they did.

It’s very hard to say. The judge was very skeptical of a lot of the witnesses and pressed back against the government very forcefully, but it’s not clear he was convinced with AT&T’s argument. I think there’s a strong case that’s been made that there should be liability, that there’s both the opportunity and the incentive to discriminate and harm competition and drive up prices for consumers. I think there’s probably a more complicated discussion about [something like], “Do you have to break up the company, or is there some other remedy that could possibly work?”, like the government tried with Comcast, NBCU. I’m hoping that the judge will at least see that there is a violation of law and a problem to fix.

Oremus: Meanwhile, there’s been a scandal over AT&T’s hiring of Michael Cohen. They hired him for $600,000 last year for political consulting. That sounds on its face like corruption or cronyism. Presumably in a country with the rule of law, you shouldn’t have to hire the president’s friends and confidants to get his administration’s approval on a big business deal, or at least that shouldn’t be an effective way of getting his administration’s approval.
AT&T’s CEO Randall Stephenson has since
called it a mistake, but how bad is this really in your view?

It’s really hard to say. Welcome to Washington—welcome to the swamp. I wouldn’t fault anybody, any company, any nonprofit, anyone who in the middle of a policy fight who said, “We need to understand better the way the administration thinks about things or the way the president thinks about things.” Now, whether it’s appropriate for Michael Cohen, the lawyer for the president, to be setting up a separate consultancy, and be kind of on the side looking for ways to make money, I think that’s one set of questions you have to ask. What’s appropriate there, and what did the White House know about that? And how did the White House feel about that? There certainly are enormous appearance problems about all this, and I have to believe that’s why Randall Stephenson was so upset with how this played out for his own company.

But in general, the idea of looking for ways to find people who know the thinking of decision-makers—that happens every day in all different policy areas. But what you see with the kind of money being paid, you really see how money drives politics in Washington, not for just this one case, not for this one company, but across the board.

Glaser: Now Bob Quinn, who headed AT&T’s infamously large army of lobbyists, stepped down. What’s the significance of that?

It’s hard to say. It’s hard to believe that someone like Bob Quinn, who’s a professional, who’s been at this for years and years and years—and I know him to play the game fair and square, like so many other players within AT&T and other companies—it’s hard to believe that this all somehow his fault, but it’s a signal that this was big. This was not just a little appearance issue. This is a lot of money to the president’s lawyers. I don’t even know if we know everything about what was going on with meetings, and discussions, and what was happening there. How we even know the details of how much AT&T paid Michael Cohen is related to other litigation, and other leaks, so I don’t know if we know the whole story about this. But in observing AT&T for many, many years, I would say they play hard, they fight aggressively for their interests, but they usually don’t fire people for just doing their jobs. So I just don’t know if there’s other things we don’t know yet about what the whole story is here.

Glaser: Certainly, that was a detail that shocked me. Quinn always seemed like an immovable force on the Hill.

Yeah, and he’s a very straight shooter.
You knew where he was coming from; you knew what he was fighting for. He was honest, fought for his company, worked for them forever. I was quite stunned myself.

Oremus: Earlier you alluded to Facebook and Google as a sort of red herring in this AT&T–Time Warner antitrust case because, as you say, they’re really in a different business. But could you talk briefly about whether the way antitrust folks view Facebook and Google, and other tech companies, is also evolving?

I think so, and I think those companies have always been under antitrust scrutiny. Even when I was at the Justice Department, there was a challenge of a Google transaction similar to AT&T and Time Warner that was worked out with a consent decree, but what that meant was the Department of Justice found that it would have violated the law for that transaction to go forward, and then there was a full licensing of a software company that basically did airline reservation systems, and that was made available to everyone in the marketplace, so it’s not the first time these companies have come under government scrutiny.

It certainly is something that deserves a lot more attention, but it deserves attention for precisely what they do and whether they have broken the law. Being large is not a violation of the law. If we have a problem with search being dominated by one company, if they haven’t engaged in anti-competitive behavior, then we have a different problem of do we believe there’s a danger of discrimination? Do we believe there’s a danger of Google favoring itself?

Similarly, with Facebook, if we have this massive social network, if we really don’t think anyone else can compete, have they done anything to actually drive out competitors or prevent others from entering? If so, then there’s an antitrust problem. In the video case of AT&T and Time Warner, we talk about must-have programming. Do you really need to have TBS and TNT? In the online world, I would argue there’s a parallel of must-views. In order to reach my friends, my acquaintances, business contacts, in order to be informed about politics, do I have to use Facebook? Do I have to use Google? If that’s the case, then become more like essential parts of our daily lives, and they’re I think we’re going to need a standard for the large tech platform companies to not abuse their position in the marketplace, to not favor themselves, not discriminate against others.

I’m not sure antitrust law will capture all of that kind of policy need. What’s most important in media, and telecommunications, and internet service providers, we’ve had a regulatory agency, the Federal Communications Commission, that is there to promote the public interest. You can question whether it’s doing it today, but nonetheless, it has that function and it works parallel, in tandem with antitrust. The problem for Facebook, Google, and Amazon and others that is there is no agency that they have to answer to, to serve the public interest or promote more competition, and that may be a real flaw in our policy framework today that we need to address.