Trump throws a spanner into the big AT&T/Time Warner deal

The Justice Department filed a lawsuit yesterday (November 20) to block the proposed AT&T/Time Warner merger.

time warner building

The suit, reported Politico, came little more than a year after then-candidate Donald Trump said the $85bn merger would place ‘too much concentration of power in the hands of too few.’

However a political storm has been growing over whether the administration has tried to use its review of the deal to force the sale of CNN, a frequent target of President Donald Trump's media criticism.

A DOJ official told reporters that the agency was concerned the combined company would charge competitors hefty fees to distribute Time Warner content, providing an unfair advantage to AT&T-owned DirecTV. Such an arrangement would have a negative impact on American TV viewers, said the official, who spoke on condition of anonymity.

"We believe, and our investigation has found, the merger would harm competition, resulting in higher bills and less innovation for millions of American consumers," the official said, adding that the agency made a "good faith effort" to resolve the conflict through negotiations.

The official denied that ownership of CNN was a factor in the DOJ's thinking and said the Trump White House had no influence over the decision to challenge the merger in court. No state attorneys general have signed onto the DOJ legal complaint, though the department remains "hopeful" that will change, the official said.

AT&T meanwhile blasted the government's move, with the company's general counsel David McAtee calling the lawsuit a "radical and inexplicable departure from decades of antitrust precedent."

"Vertical mergers like this one are routinely approved because they benefit consumers without removing any competitor from the market. We see no legitimate reason for our merger to be treated differently," McAtee said in a statement. "We are confident that the Court will reject the Government’s claims and permit this merger under longstanding legal precedent.”

Sources familiar with the deal told Politico earlier this month that the DOJ gave the companies an ultimatum to either sell Time Warner's Turner Broadcasting, which included CNN as well as networks like TBS and TNT, or shed satellite television provider DirecTV. The sources said it's clear the government's main sticking point is CNN, which Trump often maligns as "fake news."

AT&T chief executive, Randall Stephenson said his company "never offered to sell CNN and have no intention of doing so."

As the negotiations hit an impasse in recent weeks, the two sides gave signs of preparing for a court battle. Stephenson, speaking at a Nov. 9 conference, said AT&T was fully prepared to litigate if the Justice Department rejected the transaction and would ask for an expedited hearing. The company also hired attorney Daniel Petrocelli, who once represented Trump, in preparation for the legal fight.

AT&T spent most of this year confident the government would approve the deal because it was considered a "vertical" merger that didn't eliminate a competitor from the market. But the arrival of Makan Delrahim, Trump's nominee for DOJ antitrust chief, in late September appeared to have changed the equation, and the issue of divestitures took center stage.

Trump, who has repeatedly derided CNN's coverage of his administration, has loomed over the deal since the companies announced it a little over a year ago. Shortly after the merger was announced in October 2016, then-candidate Trump said in a speech in Gettysburg, Pennsylvania, that his administration would block the deal on populist grounds — that it would place “too much concentration of power in the hands of too few.”

Since then, he has kept up his Twitter-fueled attacks on the news network, tweeting as recently as last week that he was "forced" to watch CNN while in the Philippines and "again realized how bad, and FAKE, it is. Loser! (sic)”

The merger said Politico would allow AT&T, one of the nation’s largest wireless and pay-TV providers, to bulk up its media holdings with brand names including HBO and Warner Bros. in addition to CNN. Stephenson this month framed his interest in buying CNN as part of a larger effort to compete with tech companies like Google and Facebook to attract advertisers.

AT&T has been thwarted before when pursuing a big deal in Washington. The company made a $39bn bid for T-Mobile in 2011 but dropped the deal after the Obama Justice Department sued to block it.

Get The Drum Newsletter

Build your marketing knowledge by choosing from daily news bulletins or a weekly special.