The U.S. government announced on Monday that it plans to sue AT&T in a bid to stop the wireless giant from proceeding with its proposed $85 billion purchase of content powerhouse Time Warner.
In response, AT&T redoubled its commitment to the deal, pledging to fight the Justice Department in a court case that could span months or more — and hinge at least in part on President Donald Trump’s public opposition to the two companies’ plans.
In the eyes of the DOJ, the merger — one of the largest “in American history,” an agency official told reporters — would result in “higher prices for consumers and less innovation for millions of Americans.”
Specifically, DOJ said it had no choice but to sue because it believes AT&T would “use its control over Time Warner’s popular and valuable networks to hinder its rivals by forcing them to pay hundreds of millions of dollars more per year for the right to distribute those networks,” the official explained. That includes Time Warner-owned properties like HBO, TBS, TNT and CNN, the latter of which Trump has criticized.
For its part, AT&T sharply rejected the U.S. government’s claims.
“Fortunately, the Department of Justice doesn’t have the final say in this matter,” said David R. McAtee II, the company’s general counsel, in a statement. “Rather, it bears the burden of proving to the U.S. District Court that the transaction violates the law. We are confident that the Court will reject the Government’s claims and permit this merger under longstanding legal precedent.”
AT&T initially envisioned the Time Warner merger, announced in October 2016, as a critical way to expand its reach into consumers’ lives at a time when wireless revenues are declining.
As proposed, the deal would have married AT&T’s 100 million cable and wireless subscribers and Time Warner’s valuable content brands, like HBO and CNN, hoping to further solidify its place in consumers’ living rooms and smartphones.
Quickly, though, anti-consolidation consumer groups, including Free Press, sided with some of AT&T’s soon-to-be content competitors, like Starz, to rail against the deal. They feared the combined company would have too great a reach — and too much market power. Some specifically expressed fears AT&T would withhold popular HBO programming or charge high, arguably unfair prices for others to carry it.
Nevertheless, AT&T and Time Warner initially told investors they expected the deal to close quickly — particularly because it was in the hands of what they believed to be a merger-friendly, Republican-dominated Washington, D.C.
Even the U.S. government’s leading antitrust enforcer — Makan Delrahim, a competition lawyer who arrived at the DOJ this summer — at first expressed an openness to the merger. Months before he was nominated to his post, he said he didn’t believe AT&T’s plans for Time Warner posed any major antitrust concerns.
After arriving at the Justice Department, however, Delrahim began to scrutinize the $85 billion deal more aggressively. And many sources described a tense meeting between DOJ officials and AT&T executives in early November. There, DOJ aides appeared to issue the companies an ultimatum: That they would challenge the merger in court unless AT&T sold Time Warner’s Turner unit, which owns CNN, or divest from its current ownership of DirecTV.
Yet looming large over the merger — and now, the court battle — is Trump.
Dating back to the 2016 campaign, he publicly blasted the companies’ merger plans in no small part because he is a vocal critic of CNN, which is part of Time Warner’s Turner TV unit. At one point, sources suggested that Trump could use AT&T’s merger with Time Warner as leverage in pursuit of better coverage by CNN.
The Justice Department, however, has stressed in recent weeks that it has proceeded with its investigation independent of White House interference. The DOJ repeated that again Monday. And Trump, for his part, said the same earlier in November, at one point contending he “didn’t make that decision” to challenge the deal — or seek the sale of CNN.
Meanwhile, the DOJ declined Monday to specify the nature of its conversations with AT&T — and what, exactly, it wanted the combining companies to do in order to win its approval.
“Suffice it to say, we gave it a very good faith effort to try to resolve the harm the government was able to find and still allow for portions, significant portions I will add, of this vertical merger to go forward,” a DOJ official said.
Still, the aide said that he was “really glad that Randall Stephenson” — the CEO of AT&T — “publicly stated, and explicitly said, nobody at the division has ever demanded the sale of CNN.” (Of course, Stephenson’s comments, from a conference in New York City earlier this month, did not address a demand that AT&T sell CNN’s parent, Turner.)
In many ways, the DOJ lawsuit is a rarity: Typically, the U.S. government looks more favorably when companies in different industries seek to combine. Deals like AT&T’s proposed purchase of Time Warner are called vertical mergers because they don’t wipe an existing competitor out of the marketplace.
Instead, the U.S. government’s opposition appears to center on a belief that legal settlements that pave the way for a merger — yet include lengthy rules policing the behavior of two companies — tend not to work. At one point, the DOJ stressed on its call Monday these so-called behavioral remedies had failed to address the feds’ concerns following Comcast’s purchase of NBC Universal in 2011.
“That approach is fundamentally regulatory, imposing ongoing government oversight on what should preferably be a free market,” Delrahim said during a speech earlier this month.
This article originally appeared on Recode.net.