The Justice Department’s attempt to block the AT&T–Time Warner merger marks a laudable return to pro-competition antitrust policy — and also a threat to freedom of expression and rule of law in the United States.
In the coming weeks, the DOJ will insist that its lawsuit against the telecommunications giant is exclusively the former, while AT&T is already working overtime to convince the courts (and the #Resistance) that it is solely the latter. But the reality is that both sides are telling the truth about their adversaries’ impure motives: The weight of the evidence suggests that AT&T really is trying to gain market power for the sake of soaking consumers, and that the Trump administration really is singling out CNN’s parent company for unfavorable treatment.
If the Justice Department wins this showdown, it will establish a far-reaching precedent against anti-competitive vertical mergers — one that would rattle Silicon Valley and reshape the broader economy in ways that Democrats have been calling for. But a DOJ victory would also put teeth into president Trump’s constant attacks on any news outlet that refuses to comport itself as his personal Pravda.
Who, then, should a right-thinking liberal be rooting for in this scrum? To assess that question, let’s break down each side’s case, starting with Team AT&T’s claim that:
The Trump administration is trying to suppress dissent.
Donald Trump is not a fan of CNN. The president has derided the network as “fake news,” refused to accept questions from its reporters, tweeted out a video of him wrestling the network to the ground — and then a cartoon image of a CNN reporter getting run over by a “Trump train.”
Last winter, Trump’s son-in-law Jared Kushner complained to a Time Warner executive that CNN’s political coverage was “unfair” and “slanted against the president.” At that time, the company’s $85.4 billion sale to AT&T was already awaiting government approval — context that made Kushner’s gripe look a bit like a tacit threat.
Months later, the White House decided to make that threat explicit:
White House advisers have discussed a potential point of leverage over their adversary, a senior administration official said: a pending merger between CNN’s parent company, Time Warner, and AT&T. Mr. Trump’s Justice Department will decide whether to approve the merger, and while analysts say there is little to stop the deal from moving forward, the president’s animus toward CNN remains a wild card.
To review: A senior administration official told the New York Times, on the record, that the White House just might sic the Justice Department on CNN’s parent company, in hopes of extorting the network into more favorable coverage. This quote is, itself, an attack on freedom of expression; it is a high-ranking, White House official warning Time Warner — and any corporation with a news division — that owning an outlet critical of president Trump now carries significant downside risk.
That bell can’t be unrung. Once that Times piece ran, it became impossible for the Justice Department to halt the AT&T–Time Warner deal without sending a nefarious message about the costs of dissent. And that message is underscored by how inconsistent the DOJ’s move is with decades of legal precedent, the administration’s broader outlook on media consolidation, and even the stated views of the official prosecuting the Justice Department’s case.
“The sheer size of it, and the fact that it’s media, I think will get a lot of attention,” Makan Delrahim said of the merger, when it was first announced in October 2016. “However, I don’t see this as a major antitrust problem.”
Thirteen months later, Delrahim is Trump’s assistant attorney general for antitrust — and now believes that the AT&T–Time Warner deal would “greatly harm American consumers.”
There’s a strong case for Delrahim’s new stance (one we’ll explore in a moment). But his position last year was also quite reasonable: Time Warner and AT&T aren’t direct competitors. Thus, their merger would be an instance of vertical integration, with a content distributor securing an in-house content provider (as opposed to a “horizontal merger” between two content distributors). A decades-old, bipartisan consensus on antitrust law holds that vertical mergers are generally good for consumers — and the federal government has not sued to block one since 1979.
In 2011, Comcast merged with NBCUniversal. That deal raised the same exact antitrust concerns as the AT&T–Time Warner deal does now. And the Obama administration approved it — after attaching conditions meant to prevent the cable provider from cutting off its competitors’ access to NBC content. AT&T has signaled it is willing to make similar concessions. But the Trump administration has refused to offer the telecom giant the same deal that its competitor received six years ago.
Meanwhile, Trump’s Federal Communications Commission is enacting an aggressive, pro-media consolidation policy — shredding restrictions on how many news outlets a single entity can own in a given media market, while working to eliminate net neutrality.
Given the president’s broader antipathy for press freedoms and rule of law, his administration’s aberrant treatment of AT&T would be wholly reprehensible, were it not for the fact that:
AT&T is (almost certainly) trying to hose consumers.
The government’s argument here is pretty simple: If AT&T (which owns DirectTV) purchases Time Warner, then the largest television provider in the United States would have privileged access to Turner Broadcasting’s programming portfolio — including the rights to many live sporting events and CNN. This would empower Turner to demand exorbitant fees in negotiations with DirectTV’s competitors. And that would end up hurting consumers.
Right now, when Turner sits down across the table from Comcast, both sides have leverage: If Comcast refuses to pay a fair price for the right to air Turner’s content, then its subscribers will miss out on CNN, along with many NBA and MLB games. And that could cause Comcast’s customers to cancel their coverage or switch providers (in the era of Roku, a cable subscription that doesn’t include live sports and news isn’t worth much). Meanwhile, if Turner asks for too much, and Comcast blacks out its channels, then the broadcaster could lose out on significant revenues, both from fees and advertising.
But if Turner shares an owner with DirectTV, than the balance of power shifts dramatically in its direction. Now, Comcast’s loss is also AT&T–Time Warner’s gain: If the cable company rejects Turner’s demands and blacks out its channels, then DirectTV could steal its subscribers. This power imbalance could allow Turner to extract enormous fees for its content — and thus, drive up the price of your cable bill.
But don’t take the Justice Department’s word for it — take AT&T’s. In official statements arguing against mergers by its competitors — and justifying its own proposed merger to investors — the telecom giant and its subsidiaries have endorsed the heart of the government’s case. Here is DirectTV explaining the hazards of vertical integration:
[V]ertical integration of programming and distribution can, if left unchecked, give the integrated entity the incentive and ability to gain an unfair advantage over its rivals. This ultimately results in higher prices and lower quality service for consumers.
Elsewhere, the satellite-television provider has argued that vertically integrated programmers “can much more credibly threaten to withhold programming from rival [distributors]” and “use such threats to demand higher prices and more favorable terms.”
AT&T, meanwhile, has observed that distributors that own popular programming “have the incentive and ability to use (and indeed have used whenever and wherever they can) that control as a weapon to hinder competition.”
On these very grounds, the Justice Department asked AT&T to agree to sell either DirectTV — or Turner Broadcasting — if it wished to have its merger approved. AT&T refused, holding out for the deal that Comcast secured in 2011. Back then, the cable provider agreed not to favor NBCUniversal’s content, while NBCUniversal agreed to submit its negotiations with other distributors to arbitration.
But there are sound reasons for the DOJ to take a harder line on AT&T’s deal. For one thing, DirectTV is available nearly everywhere in the United States, while Comcast is a regional provider. More critically: The approach that the DOJ took to the Comcast-NBC deal appears to have failed. As Stratechery notes:
The truth is that that Comcast deal provides plenty of evidence that the consent decree failed to prevent the anticompetitive behavior predicted by the DOJ:
•Comcast reportedly interfered with Hulu, in violation of its consent decree
•Comcast failed to promote standalone broadband as it promised in the consent decree
•Comcast discriminated against Bloomberg News, in violation of its consent decree
•Comcast is accused of keeping NBCUniversal Content away from OTT distributors, in violation of its consent decree
•Comcast has experimented with data caps, which would have the effect of punishing OTT alternatives; this wasn’t a violation of the consent decree, but was very much in line with the DOJ’s critique of the anticompetitive nature of Comcast’s purchase
•Comcast is accused of making low-price TV packages unviable for competitors; again, not a strict violation, but in line with the DOJ critique
Worst of all, the consent decree expires next year: nothing is stopping Comcast from engaging in the behavior the DOJ worried about, and every indication is that they will.
In 2011, the Justice Department found that a vertical merger between a television distributor and content creator could undermine consumers’ interests. Therefore it imposed certain conditions on the merger. Over the ensuing years, it has become clear that the DOJ lacks the resources to police those conditions — and consumers appear to have suffered.
Thus, the Comcast-NBC precedent supports the government’s case more than it undermines it.
What’s more, in recent days, Delrahim has articulated a coherent philosophy on antitrust — one that reconciles the administration’s decision to block the AT&T–Time Warner with its antipathy for regulation: “Proper and timely antitrust enforcement helps competition police markets instead of bureaucrats in Washington, D.C. doing it,” Trump’s top antitrust enforcer said in a speech last week. In other words: Attaching onerous conditions to potentially anti-competitive mergers requires more “big government” oversight than merely rejecting such deals outright.
This still doesn’t square the FCC’s current approach to media consolidation with the Justice Department’s. And that dissonance still suggests the DOJ’s new outlook on antitrust was born of the worst possible motives. Nonetheless, the fact the FCC is paving the way for an even more oligopolistic media market makes aggressive antitrust enforcement more urgently necessary.
So: What is a good, Trump-hating progressive to make of all this?
All in all, I’d say America will be better off if the Justice Department prevails. The policy argument against the AT&T–Time Warner merger is strong — and the legal one appears to be sound. Yes, the administration’s approach here breaks with the status quo norms of antitrust enforcement, but those norms have demonstrably failed to achieve their stated ends. The federal government is ill-equipped to police condition-laden merger agreements. As Georgetown University Law Center’s Steven Salop tells Bloomberg, such fixes are often “unenforceable, leave loopholes that let companies avoid their restrictions, and cannot cover all the ways a firm can harm competition in the future.”
At a time of rampant corporate consolidation — one in which tech giants are bringing vertical integration to new, towering heights — there’s great value in having a Republican administration establish a more robust standard for approving such mergers. This fact doesn’t nullify the risk that a DOJ win in this case could discourage dissent. And the stakes of maintaining (what remains of) an adversarial Fourth Estate can look higher than those of protecting cable subscribers against price hikes.
But as Matt Stoller writes, the risk of discriminatory antitrust enforcement is mitigated somewhat by the check of the judiciary:
The public should also not forget that AT&T has the right to appeal any decision by the DOJ to the courts, where the Antitrust Division would have to litigate the case in the open. AT&T would have ample opportunity to bring any evidence of White House interference to light. In fact, the Tunney Act of 1974 was passed for this very reason after Nixon’s interference with ITT. The act allows courts to review antitrust settlements, meaning that if the DOJ and AT&T came to a settlement, the court would have a right to hold hearings, take testimony of government officials or experts, appoint special masters, consultants or expert witnesses, admit amicus curiae or intervenors, review written comments, responses and objections, and “take other such action in the public interest as the court may deem appropriate.”
Abuses of state power threaten democracy — but so do abuses of private power. And the AT&T–Time Warner deal might be an instance in which the first is a lesser evil than the second.