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Justice Depart. tries again to get AT&T-Time Warner stopped, threatening new AT&T WatchTV  1 Week ago

Source:   USA Today  

The Justice Department is appealing a federal judge's approval last month of AT&T's $85 billion acquisition of Time Warner, a deal that was expected to usher in a wave of media and telecom mergers designed to counter the growing heft and influence of Netflix, Amazon and Apple. 

AT&T announced the deal in October 2016, but the U.S. government sued to block the merger in November 2017, saying one company having so much power over both how Americans get their entertainment (AT&T provides broadband as well as owns satellite TV service DirecTV) — and what they watch — would hurt consumers.

But Judge Richard Leon approved the deal last month after a six-week trial ended in April, ruling the government had not adequately made the case the combination of a telecom distributor with a network of TV studios and channels would hurt competition. 

The DOJ's move, announced Thursday, goes against Leon's advice, which discouraged the agency from seeking a stay. "I do not believe that the Government has a likelihood of success on the merits of an appeal," he said in his June 12 ruling.

"The Government has had this merger on hold," he wrote, as "the video programming and distribution industry has continued to evolve at a breakneck pace."

The Justice Department offered no additional comment beyond its filing Thursday. 

AT&T, however, did have some comments harkening back to the judge's ruling. “The Court’s decision could hardly have been more thorough, fact-based, and well-reasoned," said AT&T General Counsel David McAtee. "While the losing party in litigation always has the right to appeal if it wishes, we are surprised that the DOJ has chosen to do so under these circumstances.  We are ready to defend the Court’s decision at the D.C. Circuit Court of Appeals.”

More: Cord cutter déjà vu: Streaming channels are looking more like those hated cable TV bundles

More: A Fox-Comcast deal faces 'higher regulatory risk' than one with Disney, Fox says

AT&T shares (T) were down 1.4% in aftermarket trading Thursday to $31.78.
 
During the trial held in the U.S. District Court in Washington, D.C., the DOJ argued AT&T  would have the leverage to charge rival pay-TV providers more for the right to distribute Time Warner's networks. Those higher costs would be passed on to consumers, the government said.

AT&T countered that a combined company would be better able to compete with a growing roster of online video competitors including Facebook, Google, Netflix and Apple.

Time Warner has been incorporated into an new entity within AT&T called WarnerMedia, which includes HBO, the Warner Bros. studios, and Turner networks such as CNN and TBS.

The DOJ appeal -- and its potential success -- could threaten AT&T's plans to deliver new video offerings such as AT&T WatchTV, a broadband-delivered video service with 30-plus channels, made available free to consumers under two new AT&T unlimited plans or for $15 monthly for other consumers.

And the government's perseverance could dampen other strategic plays across the media industry including the bidding war between the Walt Disney Co. and Comcast for a collection of Twenty-First Century Fox assets including its movie and TV studios and its stake in streaming service Hulu.

Disney has bid $71 billion for the Fox assets, but Comcast had been expected to make an additional counter-offer. Comcast, which owns NBC Universal, entered the bidding June 13, one day Judge Leon delivered the AT&T-Time Warner verdict, with a $65 billion all-cash offer to counter Disney's original $52 billion cash-and-stock bid.

Subsequently, Twenty-First Century Fox's board said the sale of its movie and TV studios to Comcast faces "higher regulatory risk" than a sale to Disney. A Comcast transaction could be delayed or denied, the board said in a Securities and Exchange Commission filing.

The DOJ's move could increase that risk as its arguments against the AT&T-Time Warner included concerns that AT&T would be the sole distributor of highly sought-after content such as HBO. A similar argument could be made that Comcast's acquisition of Fox's content would make it an even more content-rich distributor.

However, both those companies will likely continue their quest. That's because some Wall Street analysts had already anticipated the DOJ's move and are dismissing it because of the strength of the judge's ruling, says Daniel Ives, chief strategy officer & head of technology research for GBH Insights. "The DOJ appeal will add more noise to the story in the near term until it is heard in the courts although AT&T is moving ahead full steam in its merger plans," he said.

Looming over the DOJ's appeal is the Trump factor. President Donald Trump, as a candidate, said, "AT&T is buying Time Warner, and thus CNN, a deal we will not approve in my administration."

CNN has long been a target for Trump, calling the Time Warner-owned news network "fake news." His son-in-law Jared Kushner brought up concerns about CNN's coverage being unfair to the administration in a February 2017 meeting with Time Warner executives.

In advance of the trial, AT&T asked for access to White House correspondence, seeking evidence of Administration pressure on the DOJ, but the judge denied the request. Still, that issue could arise during the appeal.

Since the decision, AT&T has raised prices on its DirecTV Now service -- by $5 monthly across its various tiers -- and some of its unlimited wireless plans.

Consumers should be heartened by the DOJ's move, says John Bergmayer, senior counsel at consumer advocacy group Public Knowledge, who described the merger as "a bad deal for consumers and competition."

In addition to raising prices, AT&T has also "more than doubled the mysterious ‘administrative fee’ it tacks on to most of its wireless bills, and raised the price of some of its wireless plans while removing the HBO subscription that it had previously included," he said. "Judge Leon’s decision contained numerous errors, and we believe the DOJ’s position should be vindicated.”

More: Disney can buy Fox if it sells 22 regional sports networks, Justice Dept. says

More: AT&T-Time Warner decision will set stage for Hollywood's future

 

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