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DOJ vs. AT&T-TW: Battle Lines Drawn

WASHINGTON — The first big merger review under President Donald Trump will soon be the first big legal battle between the Trump Department of Justice and the media, with the two sides now ready to square off.

At stake in the trial over telco AT&T’s plan to acquire programming giant Time Warner could be whether traditional distributors are allowed to heavy up in the face of competition from over-the-top providers that dwarf them, such as Netflix and Google.

Still, the deal is valued at $108 billion, something the DOJ points out is the largest-ever vertical merger. AT&T, whose DirecTV and U-verse TV platforms combine to make it the No. 1 U.S. pay TV provider, will have to pony up $500 million if the deal does not close by June 21.

Both sides have now outlined their battle plans in pretrial briefings to the U.S. Court of Appeals for the District of Columbia, with AT&T-Time Warner getting help from some former DOJ officials.

Those ex-DOJ officials, including former Nixon White House Counsel and Watergate figure John Dean, said in an amicus brief that the court needed to drill down on whether President Trump put a thumb on the scale for blocking the deal in retribution for CNN news coverage. (Dean is an analyst for CNN but was speaking for himself, not the network.) President Richard Nixon famously threatened The Washington Post’s broadcast licenses over its reporting about his administration.

Judge Richard Leon, who is overseeing the case, has declined to force the White House and Justice to turn over any potential communications on the deal, but Dean and others said it can and should, given candidate Trump’s declaration that his administration would block the deal. “Based on the president’s clearly expressed animus toward CNN and his threats directed at the network, defendants [meaning AT&T and Time Warner] likely can make a prima facie showing that the present action was brought with improper motive to retaliate against CNN,” they told the court, asking it to rethink that decision and allow the president’s possible influence to become an element of the trial. They took no position on the antitrust issue.

Justice, sprinkling its arguments with cultural references (see box), said flatly that the government will prove that if AT&T buys Time Warner, consumers will pay hundreds of millions of dollars more “to watch their favorite programs on TV,” Because they will do that — as AT&T and Time Warner have themselves said happens (in the context of another merger) — the deal’s effect “may be substantially to lessen competition” (particularly from emerging online platforms) because “prices for current services will go up and development of emerging competition will slow down,” the DOJ argued. That potential anticompetitive effect is billed by DOJ as a kind of threat of significant harm.

The Consumer Federation of America and Public Knowledge, which oppose the deal, suggested the FCC’s network neutrality regulation rollback buttresses Justice’s case. “In abandoning the 2015 Open Internet Order,” they said in a paper on the case published last week, “the FCC has turned a blind eye to anti-consumer, anticompetitive practices that afflict all digital communications markets, increasing the need for the Department of Justice to act.”

AT&T and Time Warner lawyers will tell the court that the business is moving from a TV-centric to an online video-centric model, where its competitors are the vertically integrated online behemoths Netflix, Amazon, and Google, among others. For example, “as of the end of 2017,” they said, “Netflix had approximately 118 million global subscribers and nearly 55 million U.S. subscribers, more than the top six U.S. cable companies combined.”

AT&T and Time Warner also insisted, “The transaction before the Court is a vertical merger of two companies that operate in highly competitive environments, but do not compete against each other.” Said AT&T-Time Warner: “The government’s suit to block this merger is not only baseless in fact, but it is affirmatively contrary to consumer welfare, making it difficult for the government even to allege a viable antitrust claim, much less prove one.”

The sides square off in court beginning March 19 in Washington.