Business

AT&T, Time Warner merger would create giant new media company

AT&T attorney Daniel Petrocelli left the federal courthouse in Washington after a judge approved the $85 billion merger of AT&T and Time Warner.
Jose Luis Magana/Associated Press
AT&T attorney Daniel Petrocelli left the federal courthouse in Washington after a judge approved the $85 billion merger of AT&T and Time Warner.

A federal judge in Washington on Tuesday cleared the way for the telecom titan AT&T to complete its $85 billion merger with movie and television producer Time Warner, a defeat for the Trump administration, which had sued to block the deal.

The merger, which is set to be completed June 21, would create a massive new media company, combining AT&T’s cable TV, satellite TV, and cellular telephone networks with the media giant that owns the Warner Bros. movie studio as well as the cable TV channels CNN and HBO. The sheer scale of the deal is what led the Justice Department to file an antitrust lawsuit to try to prevent the merger.

But after a six-week trial, US District Judge Richard Leon said the government had failed to meet its burden of proof that the merger would harm consumers. Leon said the government had ‘‘taken its best shot’’ to oppose the merger. But, he added, ‘‘the government’s evidence is too thin a reed for this court to rely on.’’

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Ryan Radia, a research fellow at the Competitive Enterprise Institute, a right-of-center think tank in Washington, praised the ruling. “The case the government made just doesn’t show a substantial amount of consumer harm,” Radia said.

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But Michael Copps, a former member of the Federal Communications Commission and an adviser to the left-leaning political group Common Cause, was dismayed.

“Justice denied and consumers skewered,” Copps said. “We’ve had far too much consolidation causing far too much harm to consumers.” And he predicted that the ruling would lead to still more consolidation. “There’s no constraints,” Copps said. “You’ve got the courts flashing a green light.”

Indeed, it’s expected that AT&T rival Comcast Corp. will now enter a bidding war with the Walt Disney Co., which has offered the movie and TV production assets of 21st Century Fox for $52 billion.

Comcast reportedly held off until the federal court had issued its ruling, but is now expected to bid as much as $60 billion for the Fox assets.

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The decision could also increase the likelihood that the cellphone network T-Mobile will be granted permission to acquire its rival Sprint for $26 billion, and that the Rhode Island-based drugstore chain CVS Health could win approval to buy Aetna, an insurance company, for $68 billion.

Many antitrust experts were surprised by the Justice Department’s suit. Mergers of companies that compete against each other are often blocked because they reduce the number of competitors in a given market. But AT&T and Time Warner are in different but complementary businesses. Time Warner makes TV shows, while AT&T broadcasts them.

Such a merger happened in 2011, when Comcast acquired the TV and movie company NBC Universal. So when the proposed merger was announced in 2016, it was widely expected that it would not be challenged.

Instead, Trump’s antitrust chief, Makan Delrahim, concluded that the merged company could use its market power to harm consumers. For instance, it could compel a rival cable company like Comcast to pay sharply higher fees for the right to carry Time Warner shows like NBA basketball games or the hugely popular HBO drama “Game of Thrones.” Cable systems that refused would no longer be able to show the programs.

Attorneys for AT&T and Time Warner argued that it would be absurd for them to deny their shows to millions of viewers, because it would cost them millions in lost broadcast fees and advertising revenues.

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There was also concern that the federal lawsuit might be politically motivated. President Trump, while still a candidate, had said he would block the deal “because it’s too much concentration of power in the hands of too few.”

Those comments and his repeated criticism of CNN, which is owned by Time Warner’s Turner Broadcasting business unit, raised speculation that Trump had pushed Delrahim and the Justice Department to block the deal.

But Delrahim swore to the court that he was not influenced by the White House, and Leon stopped most of the arguments about political interference from entering the trial.

The Justice Department could appeal the ruling. And the outcome of this case may not foretell the future.

But both Copps and Radia expressed doubt that the Justice Department will be in a hurry to challenge future mergers. “It looks bad to lose,” said Radia. “It looks worse to lose twice.”

Material from the Associated Press was used in this story. Hiawatha Bray can be reached at hiawatha.bray@globe.com. Follow him on Twitter @GlobeTechLab.