The Department of Justice filed a lawsuit Monday to block the proposed merger of AT&T and Time Warner.
According to the complaint filed in the U.S. District Court for the District of Columbia, the suit was filed over fears that the combined company would use its new control over Time Warner’s networks — including TBS, TNT, CNN and HBO — to “hinder its rivals by forcing them to pay hundreds of millions of dollars more per year for the right to distribute” them.
The Justice Department also argued the combined company would harm competition and cause less innovative offerings and higher bills.
The $85 billion blockbuster deal hit a snag even after the Justice Department’s antitrust head Makan Delrahim said before his confirmation that he would not have a problem with such a merger, which is commonly known as a “vertical merger.”
“AT&T/DirecTV’s combination with Time Warner is unlawful, and absent an adequate remedy that would fully prevent the harms this merger would cause, the only appropriate action for the Department of Justice is to seek an injunction from a federal judge blocking the entire transaction,” Delrahim said Monday in a statement.
Senior Executive Vice President and General Counsel of AT&T David McAtee II called the lawsuit a “radical and inexplicable departure from decades of antitrust precedent.”
“Vertical mergers like this one are routinely approved because they benefit consumers without removing any competitor from the market. We so no legitimate reason for our merger to be treated differently,” McAtee said in a statement ahead of the official release of the lawsuit. “The result [of the merger] will help make television more affordable, innovate, interactive and mobile.”
McAtee said AT&T is “confident” a U.S. District Court will “rejected the government’s claims and permit the merger under longstanding legal precedent.”
Larry Downes, project director at the Georgetown Center for Business and Public Policy, described a vertical merger as “a combination of companies that are on different rungs of the industry supply chain — as here a content creator (Time Warner) and a content distributor (AT&T).”
Last week, Delrahim said generally that he did not want the Justice Department to rely on “behavioral” conditions in mega-deals going forward, such as promises to curb antitrust behavior in these mergers. Instead, he said the department wanted to rely on structural changes, such as divestment, in order to avoid antitrust behavior.
Reports surfaced over the last few weeks that the Trump administration was pushing Time Warner to sell off Turner Broadcasting, the parent company of CNN, as a condition of merging with AT&T.
The Justice Department rejected that report, and said AT&T and Time Warner came up with the proposal to sell CNN’s parent company, which the department rejected. But AT&T has disputed the Justice Department’s claims and both said talks were still ongoing.
Renato Mariotti, a former federal prosecutor, told the Washington Examiner that this lawsuit “raises questions about whether they are using this merger as a way to pressure CNN.”
“Typically, Republican administrations do not aggressively challenge mergers, but the Trump administration is attacking this merger using a very aggressive legal theory,” he said.
President Trump has publicly berated CNN, calling it “fake” and “fraud” news both during the campaign season and after he was elected.
