The Justice Department is suing AT&T to stop its $85 billion purchase of Time Warner, setting the stage for an epic legal battle with the telecom giant.
The government claims that consumer cable bills will rise if the merger goes through, saying the deal would "substantially lessen competition, resulting in higher prices and less innovation for millions of Americans." AT&T would be able charge rival distributors such as cable companies "hundreds of millions of dollars more per year" for Time Warner's networks, the Department of Justice charged in a press release.
Those payments are ultimately passed down to consumers through their cable bills. The government also said the combined company would use its power to slow the TV industry's shift to new ways of watching video online. Web TV services are cheaper than traditional cable.
In an emailed statement Monday, AT&T general counsel David McAtee said the lawsuit is a "radical and inexplicable departure from decades of antitrust precedent" and that the company is confident that a court will reject the government's claims.
The government's objections to the deal have surprised many on Wall Street. AT&T and Time Warner are not direct competitors; "vertical" mergers between such companies have typically had an easier time winning government approval than mergers of rivals.
AT&T CEO Randall Stephenson said earlier this month that he would not sell "key franchises" of Time Warner to get the deal done. A person familiar with the matter, who could not go on record, previously told the AP that DOJ wanted the company to sell either Turner — the parent of CNN, TBS and other networks — or DirecTV.
AT&T has argued that buying Time Warner would let it package and deliver video more cheaply, over the internet, rather than in expensive cable bundles. It already has a DirecTV Now streaming service, which puts popular live TV networks online, and costs $35 a month and up, cheaper than traditional cable bundles.
One potential complication in the government's case may be the role of the president and influence he may have exerted on the antitrust process. As a candidate, President Donald Trump vowed to block the deal because it concentrated too much "power in the hands of too few." As president, Trump has often blasted CNN for its coverage of him and his administration, disparaging it and its reporters as "fake news."
The White House and the Justice Department have both said that the president did not tell the antitrust chief, Makan Delrahim, what to do.
Consumers Union, an advocacy group that opposes the deal, applauded the Justice Department, saying there were "legitimate reasons" to block the deal to protect consumers, even though "reports of political pressures regarding this deal are concerning."
Many had expected the government to approve the AT&T-Time Warner deal because Comcast's purchase of NBCUniversal was approved in 2011, with restrictions on Comcast's behavior that were meant to protect consumers.
Makan Delrahim, the Justice Department's antitrust chief, has previously stated his preference for requiring companies to sell off assets rather than having the government monitor whether a company keeps its promises on how to behave to the government.
"So-called 'behavioral conditions' haven't proven effective in protecting competition, so the Antitrust Division is right to take stronger action to block this deal," Consumers Union said in its statement. Comcast has faced criticism for allegedly breaking some of its promises related to those conditions.
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