Feds flex anti-trust muscle and sue to block AT&T-Time Warner deal

by Steve Blum • , , , ,

The federal justice department challenged the proposed merger of AT&T and Time Warner in court yesterday, on anti-trust grounds. The problem, according to the justice department’s complaint (h/t to Brian Fung at the Washington Post for the pointer) is that if it owns the entire content creation-ownership-distribution chain, AT&T will use that market power to muscle out its competitors, – traditional linear distribution companies and emerging over-the-top players alike…

If allowed to proceed, this merger will harm consumers by substantially lessening competition among traditional video distributors and slowing emerging online competition. After the merger, the merged company would have the power to make its video distributor rivals less competitive by raising their costs, resulting in even higher monthly bills for American families. The merger also would enable the merged firm to hinder the growth of online distributors that it views as a threat to the traditional pay-TV model…

AT&T/DirecTV perceives online video distribution as an attack on its business that could, in its own words, “deteriorate the value of the bundle.” Accordingly, AT&T/DirecTV intends to “work to make [online video services] less attractive.” AT&T/DirecTV executives have concluded that the “runway” for the decline of traditional pay-TV “may be longer than some think given the economics of the space,” and that it is “upon us to utilize our assets to extend that runway.” This merger would give the merged firm key, valuable assets, empowering it to do just that.

The core problem, according to yesterday’s filing is the proposed combination of DirecTv, which, when combined with AT&T’s Uverse service, is the nation’s largest television distributor, and Time Warner’s Turner networks. That lends credence to reports over the past couple of weeks that federal anti-trust lawyers wanted AT&T to give up one or the other in order to avoid going to court.

AT&T isn’t backing down. It’s immediate response was to call the lawsuit “a radical and inexplicable departure from decades of antitrust precedent”.