DOJ Approach in AT&T/TW Review Unclear Due to Wild Card Trump

AT&T's indication it doesn't anticipate any TW licenses changing hands as part of $108.7 billion deal (see 1701060057) makes sense because it would avoid FCC oversight and have to navigate only DOJ's antitrust process, giving it a better chance of getting through, said Quinn Emanuel antitrust lawyer Ethan Glass, who previously was DOJ assistant litigation chief. Under the department's antitrust review, AT&T/TW don't have to prove any benefits of the merger, only that it lacks competitive harms, Glass said. And for the DOJ, showing competitive harms in a vertical merger, where the deal doesn't combine two competitors, is "inherently hard," Glass said.

Speculation that AT&T would be prone to favoring TW content or reluctant to make TW content available to rivals typically isn't sufficient to convince a court; Justice has to prove it, and demonstrate that such a step would actually harm competition, Glass said. AT&T could argue that not providing TW content to competitors is pro-competitive by helping it compete against other multichannel video programming distributors, which ultimately makes it difficult for DOJ to be able to successfully sue on that theory to block the transaction, he said. Meanwhile, if AT&T favored TW content on its network but passed savings on to consumers, "I'm not sure any court would find that to be anticompetitive," Glass said, saying ultimately it's difficult to envision a route where DOJ wins at trial if it tries to block AT&T/TW.

The argument that it wouldn't be in AT&T's interests to withhold content "is belied by experience," said Georgetown University Law School Institute for Public Representation Senior Counselor Andrew Schwartzman, who was active in multiple media deal considerations. Schwartzman also said the potential for such withholding is likely be a central issue in the transaction review.

Requiring TW to divest itself of CNN might mollify the Trump administration, said a lawyer with MVPD and programmer clients. The lawyer also said one concern with the transaction might be AT&T's zero-rated mobile distribution of TW content, but that could present challenges to DOJ for crafting conditions since the agency hasn't dealt previously with zero rating matters and it also generally favors one-shot conditions like divestitures, instead of ongoing ones that require monitoring.

Along with possibly spinning off CNN, DOJ approval could require AT&T continue its infrastructure investments, Wells Fargo analyst Jennifer Fritzsche said in a note to investors Friday. She also said a denial of the deal "would be precedent setting" since no vertical merger in the technology/media/telecom space has ever been blocked, and any DOJ attempt to turn down the combination likely would fail in court, meaning it's unlikely political opposition would play a sizable role on the review process. Even though there aren't legal means to deny the merger, Fritzsche said, the White House still could use indirect channels to try to have influence terms or conditions.

In Charter Communications' buys of Time Warner Cable and Bright House Networks, DOJ banned Charter from using other distributors' most-favored-nation provisions to put alternative distribution method clauses in place and from retaliating against programmers for licensing to online video distributors (see 1604250039). Comcast's buy of NBCUniversal had it agreeing to DOJ terms that it make available to online video distributors the same content it sells to traditional MVPDs. It also agreed to give up its management rights in Hulu, not retaliate against any programmer for licensing content to a competitor and not throttle or impede rival online video distributors' traffic to Comcast broadband customers (see 1101190086). Justice didn't put conditions on AT&T/DirecTV.

AT&T said Thursday's meeting between CEO Randall Stephenson and President-elect Donald Trump wasn't about TW (see 1701120040). That meeting of the two was almost surely a negotiation at least indirectly, with Stephenson potentially making overtures such as that the company plans to add U.S. jobs if the Trump administration doesn't make business conditions difficult, said multiple deal watchers.

Any deal of this size ends up being decided on a political basis, with the law articulated to match the decision, said cable consultant Steve Effros. Precedent has been that vertical integration deals generally get approved with little difficulty, but "so far at least, this incoming administration doesn't seem to care terribly about precedent," Effros said, saying there won't be a clearer picture of the Trump administration's approach to such issues for a while.

Trump expressed opposition to AT&T/TW on media consolidation grounds (see 1610220002), but Effros said the Trump administration also talked about more government deregulation: "Take your pick, which way is it going to go.” He also said AT&T and DOJ likely aren't currently having major discussion about potential conditions, given the administration transition: “You can't have substantive conversations with the guy who is about to leave. We are just going to have to wait.”

If a Trump White House does want the deal blocked, that at least indirectly would likely factor into a DOJ analysis and maybe what conclusions the agency reaches, said one communications industry official. At the extreme, that could mean the department suing to block the deal, since Trump's comments were emphatically against the deal, the official said. Conversely, if the Trump administration instead favors a more laissez faire approach to industry and regulation, the DOJ could not pursue any conditions in AT&T/TW, the official said.