US regulator files suit to block $85.4 bn AT&T-Time Warner merger

The US Department of Justice (DoJ) yesterday filed a suit to block the proposed acquisition of Time Warner Inc by AT&T on the ground that the $85.4-billion deal would substantially lessen competition, resulting in higher prices and less innovation for millions of Americans.

In October last year, US telecom giant AT&T struck a mega deal to buy multinational media and entertainment conglomerate Time Warner for $85.4 billion in cash and stock, in what could be the year's biggest deal but highly-scrutinized acquisition. (See: AT&T confirms $85.4-bn acquisition of Time Warner)

US presidential candidate Donald Trump had been attacking CNN – a unit of Time Warner, for peddling ''fake news,'' but many analysts expected that the Trump administration would look closely at this mega merger.

AT&T's proposed purchase of Time Warner would combine its nation-wide cable TV network with Time Warner's entertainment prowess, including the Warner Bros studio and HBO as well as CNN's parent Turner Broadcasting.

The Trump administration has reportedly demanded sale of assets such as CNN before it would approve the merger, as critics, including Donald Trump have said that the merger would lead to a concentration of media power.

The combination of AT&T / DirecTV's vast video distribution infrastructure and Time Warner's popular television programming would be one of the largest mergers in American history. 

Time Warner's network offerings include TBS, TNT, CNN, Cartoon Network, HBO and Cinemax, and its programming includes Game of Thrones, NCAA's March Madness, and substantial numbers of MLB and NBA regular season and playoff games. 

Last month media reports said that a crucial meeting was held between AT&T CEO Randall Stephenson and DOJ's antitrust chief Makan Delrahim during which the two discussed divestitures that might satisfy the government concerns.

However, reports says, sources on both sides disagree about who proposed what. AT&T said it is prepared to fight any divestitures.

"Throughout this process, I have never offered to sell CNN and have no intention of doing so," Randall Stephenson said.

According to the DoJ's complaint filed in the US District Court for the District of Columbia, the combined company would use its control over Time Warner's valuable and highly popular networks to hinder its rivals by forcing them to pay hundreds of millions of dollars more per year for the right to distribute those networks. 

The complaint also says that the combined company would also use its increased power to slow the industry's transition to new and exciting video distribution models that provide greater choice for consumers, resulting in fewer innovative offerings and higher bills for American families.

''This merger would greatly harm American consumers.  It would mean higher monthly television bills and fewer of the new, emerging innovative options that consumers are beginning to enjoy,'' said Makan Delrahim.  ''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.''

''The merger would also enable the merged company to impede disruptive competition from online video distributors, competition that has allowed consumers greater choices at cheaper prices,'' Delrahim added. 

The complaint says AT&T / DirecTV describes the traditional, big bundle pay-TV model as a ''cash cow'' and ''the golden goose.''  If permitted to merge, AT&T / DirecTV / Time Warner would have the incentive and ability to charge more for Time Warner's popular networks and take other actions to discourage future competitors from entering the marketplace altogether.

Commenting on the lawsuit, David McAtee II, senior executive vice president and general counsel, AT&T said, ''Today's DoJ lawsuit is 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 see no legitimate reason for our merger to be treated differently.

"Fortunately, the Department of Justice doesn't have the final say in this matter. Rather, it bears the burden of proving to the US District Court that the transaction violates the law. We are confident that the Court will reject the Government's claims and permit this merger under longstanding legal precedent,'' he added.

Time Warner has been a takeover target since the past three years. In 2014, 21st Century Fox, controlled by media mogul Rupert Murdoch, withdrew its $80-billion takeover offer Time Warner rejected the proposal saying that it was worth more.

AT&T had in 2014 entered formed a joint venture, Otter Media, with the Chernin Group to invest in media businesses, and rolled out video streaming services

In 2015, US cable and internet provider, Comcast Corp withdrew its $45.2-billion proposed acquisition of Time Warner's cable TV service unit, after the mega deal faced opposition from consumers and a possible veto from regulators (See: Comcast scraps merger agreement with Time Warner Cable).

The unit was later acquired by Charter Communications for $56 billion (See: Charter to acquire Time Warner Cable for $56 bn).

Dallas-based AT&T is the second largest provider of mobile telephone services and the largest provider of fixed telephone services in the US.

It also provides broadband subscription television services through its newly acquired DirecTV. It has TV customers in the US and 11 Latin American countries.

AT&T is the largest telecommunications company in the world by revenue, and the world's 17th-largest mobile telecom operator.