AT&T-Time Warner acquisition highlights antitrust considerations
Q: What’s the role of the U.S. Department of Justice in overseeing the mergers and acquisitions of large companies?
A: Both the Federal Trade Commission and the Antitrust Division of the Department of Justice enforce federal antitrust laws. To some degree their functions overlap, but over time the agencies naturally have developed expertise in particular industries and, consequently, allocate merger reviews accordingly. For example, the FTC devotes most of its resources to health care, pharmaceuticals, professional services, food, energy and certain high-tech industries like computer technology and internet services. The DOJ, on the other hand, focuses on mergers in the financial services, telecommunications and agricultural markets. Accordingly, the DOJ is overseeing a potential merger between AT&T and Time Warner, companies focused on telecommunications and media.
Q: What are some reasons consumers should be interested in the outcome of AT&T’s potential acquisition of Time Warner?
A: The DOJ filed suit to block the acquisition on Nov. 20. According to the DOJ, the merger could have the potential to harm American consumers by raising television bills and lessening the variety of viewing options available in the marketplace. It also might negatively impact the way content is distributed. AT&T and Time Warner are likely to respond that theirs is a “vertical” merger (i.e., between companies that aren’t competitors) and therefore unlikely to cause consumer harm. Indeed, consumers already have a plethora of options for receiving video content, so the proposed combination will add more — not fewer — options from which consumers may choose. As a matter of precedent, AT&T and Time Warner will point to the fact that the government rarely has challenged vertical integrations and that the arguably analogous Comcast-NBC merger didn’t stifle innovation or harm consumers.
Q: Recent news suggests the DOJ may consider blocking this deal. If so, what options are left for the players?
A: If the DOJ were to succeed in blocking the acquisition (an eventuality that’s by no means certain), then the parties either could scrap the deal or restructure it in a way that would pass muster. In the past, the government resolved concerns with vertical mergers by imposing conditions designed to squelch anti-competitive behavior. For example, to receive approval for its acquisition of NBC Universal, Comcast agreed to more than 150 conditions, most aimed at hindering any inclination to favor NBC Universal content over that of competitors. But some regulators have come around to the view that “behavioral” remedies are ineffective because they are difficult to police and enforce. Instead, they favor “structural” remedies like significant divestitures. To this point, AT&T has stated that it has no intention of selling off units like CNN or DirectTV as part of a negotiated settlement. Nonetheless, structural remedies remain a theoretical possibility.