The Wall Street Journal | Op-ed | Dec. 9, 2016
Some Williams College professors want ‘context’ for a monument to spreading the Gospel.
The Justice Department wants to keep fighting AT&T ’s merger with Time Warner, and maybe it feels it must save face after the singeing rebuke by federal Judge Richard Leon last month. The irony is that the Trump trust busters are banking on Barack Obama’s judges to do the saving.
Because the vertical merger combines two businesses that don’t directly compete, the government must prove the deal would harm consumers and reduce competition. AT&T argued that marrying content with targeted advertising would help it compete with vertically integrated tech giants like Google and Facebook , which gobble up 60% of digital ad revenues.
Justice claimed AT&T would have leverage to charge other carriers more for Time Warner’s supposedly indispensable content and drive customers to its DirecTV unit. But Judge Leon concluded after a six-week trial that the government’s economic models were flawed and had failed to prove its case.
AT&T closed the deal last month but is keeping Time Warner as a separate unit pending the outcome of Justice’s appeal. The telecom company should ultimately prevail, and CEO Randall Stephenson said on Friday that “we think the likelihood of this thing being reversed or overturned is really remote.”
The government lost the last time it went to court to stop a vertical merger in 1977. But the Supreme Court hasn’t adjudicated a vertical merger since 1972 when a majority blocked Ford’s acquisition of a spark plug manufacturer. That merger combined two dominant companies in concentrated markets. Neither AT&T nor Time Warner dominate their markets, regardless of Justice’s claims about HBO’s invaluable content. Case in point: Netflix this week scored more Emmy nominations than HBO.
Some of the deal’s critics say DirecTV’s decision this month to increase prices on streaming packages by $5 per month vindicates the Justice Department. But the government argued that the merger would cause other carriers to raise prices. DirecTV is responding to moves by YouTube TV and Dish’s Sling TV to charge customers more as content becomes more expensive to acquire. The bidding war between Disney and Comcast for 21st Century Fox reinforces AT&T’s argument that content is increasingly valuable and necessary to compete with Big Tech.
The media and broadband markets are evolving fast, and savor the politics: Trump appointee Makan Delrahim, who runs the Antitrust Division, is hoping that the Obama appointees who dominate the D.C. Circuit Court of Appeals will be more receptive to his populist pitch and establish a new antitrust precedent. Mr. Obama packed the D.C. Circuit, and the liberals may be inclined to block the merger to slow consolidation that’s taking place across industries from health care to energy.
In the real world the intervention is more likely to frustrate investments that would increase competition and benefit consumers. Justice’s appeal could mainly help Google and Facebook expand their digital dominance. Somewhere Barack Obama is smiling.
Appeared in the July 14, 2018, print edition of The Wall Street Journal.
Appeared in the December 9, 2016, print edition of The Wall Street Journal.