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Federal appeals court upholds AT&T’s Time Warner merger, handing defeat to Justice Department

By: The Washington Post , Brian Fung //February 27, 2019

Federal appeals court upholds AT&T’s Time Warner merger, handing defeat to Justice Department

By: The Washington Post , Brian Fung //February 27, 2019

The outcome is a significant defeat for the Justice Department’s top antitrust chief, Makan Delrahim, who legal analysts say took a big risk in suing AT&T and who has now lost twice at court. The Justice Department said Tuesday that it did not intend to keep fighting the case.

“We are grateful that the Court of Appeals considered our objections to the District Court opinion,” said agency spokesman Jeremy Edwards. “The Department has no plans to seek further review.”.

In its decision, a three-judge panel said the government failed to prove its claims that the lower court had misapplied “fundamental principles of economics” when assessing the deal’s potential impact on consumers and AT&T’s rivals.

AT&T said it hoped the ruling would put the case to rest.

“While we respect the important role that the U.S. Department of Justice plays in the merger review process, we trust that today’s unanimous decision from the D.C. Circuit will end this litigation,” AT&T said in a statement.

But while the decision could mean the end of the AT&T-Time Warner battle, it is unlikely to settle a growing debate in Washington about the adequacy of America’s antitrust laws and whether regulators have been too meek overall in challenging mergers.

Critics of U.S. antitrust law say lax enforcement has led to ever more concentrated businesses, as well as an atrophied judicial understanding of the way companies can sometimes hurt competition even without affecting consumer prices.

“The dominant economic philosophy of the last 25 or 30 years has been that the principal way to measure consumer harm is price,” said Andrew Schwartzman, a lecturer in law at Georgetown University. “And if that was ever correct, it’s hopelessly obsolete in a digital environment.”

According to the Justice Department’s appeal, the U.S. District Court for the District of Columbia ignored how AT&T could use its control over Time Warner to raise its competitors’ costs. And, it said, AT&T had an incentive to do so because company executives would naturally seek to use both their ownership of entertainment content and AT&T’s massive distribution network to maximize the company’s overall profits.

But the U.S. Court of Appeals for the D.C. Circuit held that the lower court adequately considered those factors, and that offers by AT&T to negotiate channel prices through arbitration with competing cable companies and TV providers would reduce the likelihood of harms to competition.

In its initial case, the Justice Department had relied on a sophisticated economic model that claimed consumers could pay millions more per year for TV content if AT&T tried to force its rivals to pay higher fees in exchange for its programming. AT&T hired its own economist to undercut the theory.

Ultimately, the evidence showed it is “still in the best interests” of AT&T and Time Warner to sell its content to as many cable companies as possible, not seek to restrict access in exchange for higher payments, the appeals court said Tuesday.

“There is a rich academic scholarship about the non-price harms from excessive concentration of ownership, but it has largely been ignored by the judiciary,” said Schwartzman.

That dynamic has been complicated by large tech companies such as Google and Facebook, many of whom offer their services for free at a massive scale. Antitrust regulators who feel pressured to focus on consumer prices risk making their own jobs more difficult when confronted with zero-cost online services, according to some analysts.

Yet Delrahim has said the Justice Department is adequately equipped to analyze those industries, citing other businesses, such as the broadcast industry, that have historically provided their products to the public for free.

“Our long history with zero-price strategies also tells us that we do not need a wholesale revision of the antitrust laws to address competitive concerns in these contexts,” he said in a recent speech. “As I’ve said before, our antitrust laws and principles are flexible enough to adapt to the challenges of the digital economy.”


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