Oz Blog News Commentary

Two key assumptions in the DOJ challenge to AT&T and Time Warner

November 22, 2017 - 00:37 -- Admin

AT&T and Time Warner want to merge. They don’t really operate in the same market — AT&T is a distributor (specifically through wireless and Direct TV) while Time Warner has content — notably HBO, CNN and its Warner movie releases. The DOJ have a straightforward vertical merger concern: that the new entity will use its vertically integrated status to harm other cable TV providers and also to damage the growing competition from Internet content providers (such as Netflix). AT&T respond that competition is intense enough that they can’t really use their vertically integrated entity to do anything but compete strongly.

It is a very standard case and I don’t have the facts to know where this will end up falling. It is interesting, however, that there is no wiggle room. DOJ aren’t asking for a conditional merger — for instance, allowing a merger that faced the divestiture of some assets. In my mind, there is often a deal that can separate out anti-competitive concerns from efficiency related ones and the fact there is no such deal indicates either that AT&T and Time Warner really want this for its anti-competitive actions or there are other, perhaps political, factors leading this action.

What interests me, however, are two key assumptions underlying the DOJ’s case that are at odds with other Trump Administration policy or pronouncements.

The first is net neutrality. The Trump FCC wants to do away with it — perhaps today. But if net neutrality was in place, then the DOJ concern that the integrated firm will use its power to harm other content providers and damage growing Internet competition would be significantly mitigated. In other words, that concern rests entirely on the FCC getting rid of net neutrality! That suggests the obvious question: why not just keep net neutrality if you are worried about these things? To be sure, the merger makes it worse but the concerns arise in any case due to existing market power.

The second assumption regards the value of the Turner cable content. One such, ‘must carry’ channel is CNN. It is on basic cable everywhere (pretty much worldwide). It is hard to imagine that you can compete as a cable operator without it. What? Are you only going to offer MSNBC? Even Fox News is often a more premium offering.

The point is that in order for Turner through the merger to cause damage to AT&T’s competitors, it must be that CNN is important to consumers. But the President has tweeted that it is failing in ratings and is ‘fake news.’ In which case, just how important can it be? The President says there are other places to get news including from the Government itself. Now I am not saying that Turner can use these arguments to defend the merger. But, if they could, it would muddy the DOJ’s case somewhat.

The DOJ statement is notable for how it uses AT&T’s words, in particular, against them — quoting their own statements with regard to the previously failed Comcast merger with Time Warner. But the Trump Administration has words of its own. You really have to coordinate fully in order to bring cases like this.