Judge ignored fundamental economics in approving AT&T, Time Warner deal, justice department says

by Steve Blum • , , , ,

The judge who unconditionally blessed AT&T’s purchase of Time Warner’s content companies “rejected fundamental principles of economics”, according to a motion filed by the federal justice department as it launched its appeal of that decision…

The “assumption” the court criticized was the fundamental economic principle, recognized in case law, that the merged firm would maximize its corporate-wide profits (rather than instruct Turner and DirecTV to operate independently at the expense of overall profits to the parent corporation). This basic economic axiom of corporate-wide profit maximization forms the basis for much of corporate and antitrust law.

The brief opened with a stark warning about the danger of allowing AT&T to use its monopoly/duopoly control over broadband access to maximise its return on its Time Warner investment…

The government’s lawsuit challenging AT&T’s acquisition of Time Warner concerns the future of the telecommunications and media industries in the United States. Its outcome could determine whether the participants in these industries will be permitted to merge into vertically integrated firms that control valuable programming content as well as the means of distributing that content directly to end-customers in a manner that hurts competition and therefore consumers. If AT&T is permitted to control Time Warner’s most valuable media assets, the merged firm will have both the incentive and the ability to raise its rivals’ costs and stifle growth of innovative, next-generation entrants that offer attractive alternatives to AT&T/DirecTV’s legacy pay-TV model—all to the detriment of American consumers.

The Washington, D.C. appeals court agreed to the justice department request to put the case on a fast track. It set out a schedule for written arguments, with the final briefs due in mid-October. That’s just for the first round, though. If the appeals court decides to take up the case, a decision will likely be many months away.