What The DOJ Lawsuit Against AT&T And Time Warner Is All About – And How It Might Affect Future M&A

The US Justice Department’s antitrust lawsuit against AT&T has thrown a wrench into the $108 billion planned merger between the telco and Time Warner.

The complaint, filed late Monday, alleged the merger could “hinder [AT&T’s] rivals by forcing them to pay hundreds of millions of dollars more per year for Time Warner’s networks.”

The filing also purported that a combined AT&T/DirecTV and Time Warner could “slow the industry’s transition to new and exciting video distribution models that provide greater choice for consumers” – in other words, subscription video-on-demand services like Netflix and Amazon Prime and virtual MVPDs such as Dish’s Sling TV.

The DOJ also claims AT&T/Time Warner competitors like Charter and Comcast could be forced to pay more for Time Warner-owned content from networks like CNN, HBO and Turner.

The DOJ also called out DirecTV’s own warnings about the possible pitfalls of vertical integration. “[Vertical integration] could give the integrated entity the incentive and ability to gain an unfair advantage over its rivals,” DirecTV stated in previous public filings.

What’s Next For AT&T-Time Warner?

The AT&T-Time Warner merger often invites comparison to Comcast’s majority bid for NBCUniversal in 2009, which the DOJ approved. 

But the DOJ’s suit to block the AT&T-Time Warner merger is not comparable because it’s the first of its kind under a new administration, said Bruce Leichtman, president and principal analyst of Leichtman Research Group.

“The logic of saying this is in the consumer’s interest would have been more logical in the prior administration,” Leichtman said. “That said, the prior administration allowed NBC-Comcast to go through, but did not allow Comcast and Time Warner.”

Leichtman says it’s hard to predict how impending TV mergers, such as Sinclair and Tribune Media, would be affected if regulators stop AT&T-Time Warner from going through.

Some of the uncertainty stems from internal discrepancies between different regulatory bodies.

“We’re seeing the FCC say something different than the DOJ,” Leichtman said. “What we see now from the DOJ is the same argument the FCC made two years ago in wanting new set-top box rules.”

While it’s unclear whether the lawsuit is politically motivated by President Trump’s distaste for Time Warner-owned CNN, there are a number of implications for other media company and telco mergers, said Rick Ducey, managing director at BIA/Kelsey.

“The M&A deal flow has been really strong lately and [AT&T-Time Warner] could put a damper on it,” he said. “In any case, this action by the DOJ and presumably the administration raises uncertainty in the business community and the markets, neither of which typically likes uncertainty.

He added: “This type of second-order effect could be damaging by impacting the capital markets and appetite for investment just at a time when the Trump Administration may be putting through a program of corporate tax relief.”

 

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