The Government Made the Wrong Argument in Its Failed Challenge to the AT&T–Time Warner Merger

The $85 billion merger of AT&T and Time Warner is now officially official.* On Tuesday, a panel of federal appeals judges approved the deal, allowing one of the largest internet, cable, and wireless providers in the U.S. to become a major content provider, too. The merger will allow AT&T to proceed with plans to build its new subsidiary, renamed WarnerMedia, into a video-streaming behemoth that could include valuable offerings like HBO shows, Cartoon Network, and box-office hits like the Harry Potter franchise. To critics of media consolidation, the deal presents a number of potential anti-competitive harms to consumers. AT&T could use access to HBO or CNN as a carrot to convince customers to ditch a different broadband provider, or it could charge other cable providers more money to access those channels and drive prices up for its competitors, or it could stop carrying the content of its competitors. These are all hypotheticals, as was the argument the Justice Department offered—that the merger should be stopped simply because it could raise prices for consumers. Citing an evolving landscape that includes competitors like Netflix and Hulu, however, the court said it was unconvinced.

Had the Justice Department argued the case differently, however, and focused on other anti-competitive harms, the challenge might have had a greater chance at success. AT&T and Time Warner aren’t in the same business, even if there’s a symbiotic relationship between a company that owns the pipes and a company that makes the content it carries. This is typically called a vertical merger, meaning the two companies weren’t previously competing with each other. But just because the two companies aren’t directly competing doesn’t mean a merger won’t leave consumers in a bind.

AT&T is getting into the content business without any net neutrality rules on the books that would prevent internet providers from blocking or throttling access to websites. Because the Federal Communications Commission revoked the open-internet rules last year, AT&T is now free to decide to offer faster access to WarnerMedia’s streaming offerings than Netflix—or charge Netflix more for the same speed—as long as it discloses such a move. That could amount to a worse experience for consumers and create a tougher playing field for content startups that want to enter the market but can’t afford to pay AT&T to reach users at faster speeds.

“The Justice Department tied at least one hand behind its back when it refused to argue that AT&T could use its power as both a wireline and a mobile broadband internet access provider to favor Time Warner programming over other unaffiliated programming,” said Gigi Sohn, who served as a special counsel to former Federal Communications Commission Chairman Tom Wheeler, in a statement. It’s possible that AT&T was hesitant to point out that it’s free to act in discriminatory ways because that argument might have put it at odds with the Trump-era FCC, which favors placing fewer roadblocks in the way of broadband companies’ behavior. Still, Sohn said that the DOJ could have made an argument in this vein that did not outright affirm the now-repealed Obama-era rules. The current commission justified its new net neutrality rules, in part, as a way to improve competition by reducing regulations that FCC Chairman Ajit Pai claimed disincentivized new providers from entering the market. Making one company more powerful, as the AT&T and Time Warner merger does, doesn’t get a broadband market without net neutrality off to a more competitive start.

AT&T has questioned whether the DOJ’s lawsuit was free of political motivations, considering President Trump’s repeated criticisms of CNN for its coverage of his administration. The Department of Justice has denied that Trump’s views on the merger factored into its decision to challenge. Whatever the Justice Department’s reasons were for sticking with its narrow arguments over price, its failure to successfully challenge the merger could mark a larger setback for future antitrust cases against companies that aren’t in direct competition. This was the first time since the Nixon administration that the Justice Department has challenged a vertical merger, and the law may not best reflect the changing landscape of broadband and media, which increasingly benefits a handful of huge conglomerates. After all, the AT&T–Time Warner deal ignited a round of other mergers, including Disney’s acquisition of Twentieth Century Fox.

Importantly, the judges noted in their ruling that vertical mergers aren’t innocuous for consumers. “Vertical mergers can create harms beyond higher prices for consumers, including decreased product quality and reduced innovation,” the decision reads. This is something members of Congress are increasingly aware of too, particularly in the House of Representatives. Rep. David Cicilline, the new Democratic chair of the House Judiciary Antitrust Subcommittee, said in a recent interview he’s interested in conducting a review of the AT&T and Time Warner merger to ensure that there wasn’t any political interference in how the challenge played out.

AT&T’s merger is happening against a backdrop in which the vast majority of Americans have no more than one or two options for high-speed internet, a dynamic that makes us heavily reliant on a very small number of companies in order to access job opportunities, news, emergency information, and ways to communicate with family and friends. It could be years before we know what the unshackling of broadband providers means for how we use the web, but in the meantime, we’re seeing them become more powerful in slow motion. If this really bothers Trump’s Department of Justice, next time it will need to make a more fully throated case.