Democrats urge Trump administration to block AT&T/Time Warner merger

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Senate Democrats: “Mega conglomerate” could punish rivals and harm consumers.

A group of mostly Democratic senators led by Al Franken (D-Minn.) today urged the Department of Justice to block AT&T's proposed $85.4 billion acquisition of Time Warner Inc. The senators' letter to Attorney General Jeff Sessions predicts that "the combined company's unmatched control of popular content and the distribution of that content will lead to higher prices, fewer choices, and poorer quality services for Americans."

The Democrats couched their language a bit and said that the DOJ should block the merger if it "determine that the substantial harms to competition and consumers arising from the transaction outweigh the purported benefits." But the senators made it clear that they believe the merger's potential harms will outweigh the benefits for consumers even if the government imposes conditions on the transaction.

Time Warner is the owner of programmers such as HBO, CNN, and Turner Broadcasting System, while AT&T is the country's biggest pay-TV provider, with 21 million DirecTV subscribers and four million U-verse TV subscribers. AT&T is also one of the largest home and mobile broadband companies. (The Time Warner involved in this transaction is completely separate from the similarly named Time Warner Cable, which is owned by Charter.)

The senators wrote:
 

 

Combining these behemoths would create a mega media conglomerate with both the incentive and the ability to favor its own content over that of other entertainment companies and to restrict competing video distributors from accessing that content, harming its competitors and ultimately consumers. While the companies have suggested that the proposed deal will result in certain consumer benefits, they have thus far failed to demonstrate that these purported benefits are either merger-specific or sufficient to outweigh the substantial harms of the deal.

Besides Franken, the letter was signed by Senators Ed Markey (D-Mass.), Elizabeth Warren (D-Mass.), Ron Wyden (D-Ore.), Richard Blumenthal (D-Conn.), Jeff Merkley (D-Ore.), Bernie Sanders (I-Vt.), Maria Cantwell (D-Wash.), Sherrod Brown (D-Ohio), Tammy Baldwin (D-Wis.), and Cory Booker (D-N.J.). No senate Republicans signed the letter.

AT&T avoids public interest review

AT&T has structured its Time Warner deal to avoid a public interest review by the Federal Communications Commission. Transfers of FCC licenses normally trigger an FCC merger review, but Time Warner is getting rid of its licenses before being purchased by AT&T.

The Justice Department could sue to block the AT&T/Time Warner merger on antitrust grounds, but this is different from the FCC's public interest standard that forces the merging companies to prove that the deal is good for consumers.

President Donald Trump claimed on the campaign trail that his administration would not approve the merger "because it's too much concentration of power in the hands of too few." But after he became president, Trump appointed a Justice Department antitrust chief who had said that the AT&T/Time Warner deal doesn't present a major antitrust problem. The DOJ has not yet weighed in publicly on the proposed merger.

Franken previously asked AT&T to prove that the merger is good for customers, and the company provided a response that did not sway Franken and his Democratic colleagues. AT&T said the merger's benefits for consumers will include "more relevant advertising in ad-supported video services" and "greater choice, convenience, and value in programming bundles."

In today's letter, the Senate Democrats said the promised benefits could be achieved with "a contract between the two companies in their current capacities."

"As demonstrated by AT&T's current offering of free HBO as part of its Unlimited Plus wireless plan, the companies already enjoy a strong working relationship—one where contract negotiations have thus far not prevented them from collaborating in mobile video distribution," the senators wrote.

AT&T says it would have no incentives to restrict access to Time Warner content, but the senators are skeptical.

"DirecTV's nationwide satellite service coupled with AT&T's nationwide wireless footprint would ensure that Time Warner content could pass through nearly every home in America even if the combined company decided to offer it exclusively and deny it entirely to rival distributors," they wrote. "While restricting competitors' access to its content may reduce Time Warner viewership initially, any short-term losses in viewership could be recouped in the form of higher prices for Time Warner content among its competitors and its own customers or through increased power in the pay-TV market."

The problem with merger conditions

The Senate Democrats questioned whether merger conditions can offset harms caused by this merger.

AT&T has a "troubling track record when it comes to compliance with its past promises," they wrote. "Almost immediately after acquiring DirecTV in 2015, the company hiked prices and cited rising programming costs as a factor, despite having told regulators that the merger would help it keep those programming costs in check."

The letter continued:
 

 

There have also been accusations that AT&T has failed to meet commitments it made to meet broadband deployment goals when it combined BellSouth, Cingular Wireless, and the legacy AT&T long distance company to form the current company over a decade ago. And most recently, DOJ sued DirecTV when the pay-TV provider "orchestrated a series of information exchanges with direct competitors that ultimately made consumers less likely to be able to watch their hometown team." AT&T's history of going back on its public promises and engaging in anticompetitive behavior demonstrates that the company cannot be relied on to abide by any commitments made in furtherance of its proposal.

A combined AT&T/Time Warner could also "violate the principles of net neutrality" by imposing lower data caps and additional fees on subscribers who use competing streaming services, as well as requiring Time Warner's rivals to pay high prices in exchange for "sufficient internet bandwidth to enable high-quality video distribution," the senators wrote.

AT&T has said the merger will boost its incentives for deploying wireless broadband, but the senators' letter said it is unclear "how the DOJ would hold a communications provider accountable for such a commitment."

We asked AT&T for a response to the senators' letter and will provide an update if we get one.

UPDATE: AT&T responded, telling Ars that it has "addressed all of the issues" raised in the letter in previous communications with senators, "as well as in the extensive review of this transaction currently in process at the Department of Justice."

"Specifically, we’ve highlighted how our merger is about giving consumers more choices, not less," AT&T said. "Our DirecTV NOW product is a small example of how we can provide consumers more control over the content they purchase, and how, where and when they view content. We have also detailed how the transaction will expand distribution and creative opportunities for diverse and independent voices. Finally, we continue to believe that free data services are a huge consumer benefit that saves consumers money."