The prospect of a president using antitrust law to punish political opponents is deeply disturbing. So when news emerged this week that the Justice Department had said that Time Warner or AT&T would have to sell properties like CNN or DirecTV before the department would approve their merger, it was widely taken as Mr. Trump’s revenge against CNN, the news network he loves to hate. It seemed to fit a classic “dirty tricks” narrative.
But should we so quickly conclude that the Justice Department is doing something wrong? Maybe not.
The department seems right to worry about the idea of AT&T, the onetime telephone monopoly and the world’s largest telecom company, with annual revenue above $160 billion, taking over one of America’s most important media operations. The proposed deal should, if anything, be the focus of far more public debate. It is a merger rife not just with potential for broad anticompetitive effects but also serious conflicts of interest. That the Justice Department should seek divestitures would — absent the Trump effect — seem logical, commendable and a continuation of recent merger practice.
We don’t have the information that the Justice Department has, but here’s how the Time Warner-AT&T deal would be anticompetitive. AT&T is one of the two dominant wireless carriers in the United States (Verizon is the other). However, it faces competitive threats, particularly from T-Mobile, whose cost-cutting and ability to lure subscribers has hurt AT&T’s profits (while saving consumers money). During the Obama era, AT&T’s proposed solution to that annoyance was to attempt to buy T-Mobile. But the Justice Department and the Federal Communications Commission killed that deal. Acquiring Time Warner is an alternative: It gives AT&T a new way to hurt T-Mobile and other potential competitive threats.
AT&T’s 2016 deal with Taylor Swift offers a preview of the strategy. AT&T made an “only on AT&T” deal with Ms. Swift to release her future music videos to devoted fans, contingent on their signing up with AT&T. With ownership of Time Warner, AT&T gets a lot more content with which to play that game. It would include HBO shows like “Game of Thrones,” Warner Bros. movies like the “Batman” franchise, as well as the N.C.A.A. basketball tournament and CNN.
Though restricting HBO to just AT&T customers wouldn’t make financial sense, there are many things that AT&T could do with HBO and other programming to hurt rivals, like raising the prices for it, creating AT&T-exclusive programming and perhaps completely preventing rivals like Dish, DirecTV’s satellite competitor, from buying its programs. This strategy would take advantage of the erosion or revocation of net-neutrality rules by the Trump administration, allowing AT&T to explicitly favor its own content over others.
Time Warner, meanwhile, is threatened by the past decade’s shake-up of the TV and film industries, when new competitors, especially independent programmers like Netflix, Amazon and YouTube, leapt into the market. Facebook may soon join the field. Mergers that marry companies that produce content with those that distribute it create new ways to keep newcomers at bay. AT&T’s use of Time Warner content to defeat wireless competitors could force companies like Verizon to acquire their own content empires. The result might be a media industry like the film studios of the 1950s, which were vertically integrated and jointly resisted competition. (The studios were broken up by the Justice Department.)Continue reading the main story
There are numerous political and free speech concerns that come when those who control “the pipes” that distribute content also control the programming and news operations. Companies that controlled both the distribution and production of news programs could have enough power to influence elections. In theory, the F.C.C. should intervene to prevent such abuses, but the current commission has shown zero interest in what was once called “the public interest.”
In short, there are good reasons for the Justice Department to be concerned about this merger. Yes, the department over the past two decades has allowed many mega-mergers or taken tepid steps to restrict them through consent decrees. But the department is capable of learning from its mistakes, and the consensus now is that consent decrees don’t work. Moreover, in recent years the department has blocked several big mergers, including between Comcast and Time Warner, Halliburton and Baker Hughes, and Anthem and Cigna. Tough scrutiny of an AT&T-Time Warner deal would continue that trend.
The unfortunate fact is that Mr. Trump has engendered so much distrust in government that everything that any federal agency does these days seems questionable. The problem is compounded by the extreme secrecy that has surrounded merger reviews. In fact, the secrecy surrounding mergers exceeds that for almost any other public process with major economic impact. Even the Federal Reserve occasionally explains its decisions to Congress.
If the Justice Department is, in fact, doing its job appropriately and not behaving as Mr. Trump’s henchman, it should be willing to show us how. It ought to explain its concerns about the merger to the public and to Congress.Continue reading the main story