Deal will give early test of Trump on antitrust

The announcement of a proposed $85.4 billion merger between AT&T and Time Warner provoked strong reactions, both because of memories of the historically flawed merger between Time Warner and America Online in 2000 and because of the perhaps unprecedented consolidation of media content, the ability to deliver that content, and the power to collect consumer information that the proposed merger represents.

From the campaign trail, Donald Trump called the proposed deal "poison" and said "[a]s an example of the power structure I am fighting, AT&T is buying Time Warner and thus CNN, a deal we will not approve in my administration because it's too much concentration of power in the hands of too few." In a written statement issued after the proposed merger was announced, Trump's campaign alluded to Theodore Roosevelt's trust-busting and said that Trump would "break up the new media conglomerate oligopolies" if elected. During the campaign, Trump also attacked Comcast-NBC Universal, arguing that those two companies should not have been permitted to merge.

What potential challenges will the proposed merger face both at the Department of Justice and from private litigation, and what are the odds that it will be consummated?

AT&T's primary business is delivery of cellular, broadband, telephone, television and internet access. After its acquisition of DirectTV, AT&T is the largest pay-TV business in the United States. It is also one of the largest providers of both wireless data and broadband. Time Warner is a leading content provider, including CNN, HBO and Warner Bros.

Historically, antitrust regulators have shown less interest in vertical mergers like this one - between two companies that do not directly compete with each other but are involved in the same industry at different levels of the supply chain - than has been shown in horizontal mergers between competitors. In this, case more scrutiny than usual may be given by the DOJ because of the risk that the merger could result in the new company favoring its own content over other sources and make it harder for competitors to get Time Warner content.

It is also noteworthy that a recent proposed acquisition of Time Warner Cable by Comcast was blocked, and Federal Communications Commission Chairman Tom Wheeler stated that the acquisition "would have posed an unacceptable risk to competition and innovation, including the ability of online video providers to reach and serve consumers."

Opposition to the AT&T/Time Warner deal has sprung up from many quarters due to concerns about net neutrality and the proposed new entity's power to favor its own content. The threat may be more pronounced given the trend towards the consumption of content digitally rather than on television and AT&T's dominant position in wireless and broadband.

Imagine, for example, that the new AT&T/Time Warner took steps to enhance the delivery of the streaming service HBO GO so that it performed better on tablets and smart phones than competing services such as Netflix and Hulu. That is one instances in which competitors and consumers could be hurt. Now consider the explosion of content providers, all seeking ways to get their content to consumers and all of whom could be negatively affected by the proposed merger. The impact on competing service providers consumers could be profound.

The DOJ and Federal Trade Commission can approve a merger, approve a merger with conditions that may be enforced by court order, or sue to block a merger. To challenge the merger, the DOJ would have to show that the merger poses significant harms to the economy and to competition. As an example of the types of conditions that might be considered, when Comcast and NBCUniversal sought to merge in 2011, the DOJ imposed conditions on how programming would be licensed to online competitors. Similarly, the new AT&T/Time Warner could include eliminate its competitor's offerings, resulting in heightened access to the merged company's content.

A further complication to the merger is the DOJ's recent complaint against DirectTV and AT&T for collusion regarding televising baseball games. That complaint, based on conduct occurring before AT&T acquired DirectTV, was filed on Nov. 2, and accused DirectTV of conspiring with Cox Communications, Charter Communications and AT&T to refuse to carry SportsNet LA, the channel which broadcasts Dodger games. While this lawsuit is not directly related to the DOJ's review of the proposed AT&T/Time Warner merger, it does show the concerns of the DOJ over the concentration in the market for delivery of content. It also shows that enhanced scrutiny of the proposed merger may be necessary given DOJ's allegations concerning collusion to block Dodger games from broadcast television. If nothing else, it poses complications for the DOJ in evaluating the proposed merger and whether it would pose a risk to consumers.

In addition to the DOJ's review, the FCC will broadly weigh whether the proposed merger is in the public interest. The FCC could also insist on thorough analysis and public comment before permitting Time Warner's massive satellite transmission facilities to be acquired by AT&T.

In recent days, market analysts have indicated that they expect the deal to go forward. While it may be too soon to know what approach Trump will take, some of his early cabinet appointments suggest he may not oppose the deal.

Notwithstanding his comments on the campaign trial, President-elect Trump has hired Jeffrey Eisenach of the American Enterprise Institute to advise him on tech issues. Eisenach previously represented Verizon, and has supported many of the recent larger mergers in this industry in recent years including AT&T/T-Mobile and Comcast/Time Warner Cable. Eisenach has also opposed the FCC's net neutrality rules and has proposed stripping the FCC of its power to review potential mergers.

Furthermore, former FTC commissioner Joshua Wright has been advising the Trump transition team on antitrust issues and Wright is expected to have input into Trump's choices to fill two empty seats at the FTC. Wright has been consistently pro-merger and it should be expected that those he recommends to the FTC posts will share those views.

Even if approved by the DOJ, the proposed merger could be challenged in a private lawsuit by a consumer alleging that it would face antitrust injury from higher prices after the merger, or from the loss of quality or innovation. Such a lawsuit could also be based upon injuries to competition in the communications and media markets as a whole.

In Reilly v. The Hearst Corp., 107 F.Supp.2d 1192 (N.D. Cal. 2000), the district court upheld the standing of a newspaper subscriber to challenge the proposed acquisition of a morning newspaper by the publisher of an afternoon paper, which planned to close the afternoon paper after the merger. Standing was found because the proposed acquisition would "cause injury to competition for readers among economically viable newspapers." The district court also found that advertisers or competing publishers would also have standing to challenge the merger. Consumers of AT&T and Time Warner could make similar claims here.

The Trump administration's approach to this proposed merger will provide an early test of whether there will be tough enforcement of the antitrust laws or whether pro-business policies will be prioritized over threats to competition. It will also provide an early test of the new administration's regulatory policies in the areas of net neutrality and content delivery.