Judge Richard Leon has set March 19 as the beginning of the trial at which the Justice Department will seek to block the merger of AT&T and Time Warner.
The trial will turn, as trials necessarily do, on a lot of legal details and precedents. It's quite possible there will end up being either appeals or a settlement rather than a final decision at trial. I am not a lawyer, and the antitrust experts I've spoken to about this case are mostly economists rather than lawyers, so I have less to say about the actual trial than I'd like.
But it's worth taking a step back to look at the larger policy issue at stake. For a while now, the United States has allowed the owners of telecommunications infrastructure companies to also get into the content business. Hence for a while, Time Warner Cable and Time Warner were part of the same company, Comcast bought NBC Universal (and is a minority stakeholder in Vox Media), and now AT&T is trying to buy Time Warner.
We've also allowed telecom infrastructure companies to own different kinds of infrastructure. So Verizon is the biggest wired fiber-optic provider in the country, but also one of the biggest cell network operators. AT&T is the No. 2 wired fiber company, but also a big cell network and also owns Direct TV.
A good question is: How wise is any of this? And I don't think you can fully answer those questions with the main tools of competition law.
The basic issue with broadband is that the first guy to build a broadband network in a given neighborhood bears enormous fixed construction costs but also reaps the large gains of being able to soak the area’s residents for monopoly profits. The second guy to do so bears the exact same costs, but ends up needing to settle for fewer customers and lower prices. The third guy has the same costs but, again, less than half the customers and competitive prices. So you can see why almost nobody ends up with a third competitor.
Infrastructure-owning companies tend to be lucrative (soaking customers for monopoly profits) but tentative about expansion (because expansion means entering competitive markets where profits are lower).
Socially and psychologically, the executives of this kind of boring company face competing imperatives. On the one hand, there’s an impulse to stay dull and just pay out dividends. But normal human beings like to see themselves as the heroes of their own story. For corporate executives, that generally means building empires and doing exciting things.
Much more exciting than running an infrastructure monopoly is owning a big content company. Comcast is a boring infrastructure company. NBC Universal is in business with pro sports teams, movie stars, and other glamorous and exciting endeavors. Totally apart from any business considerations, you can see why AT&T's executives might be excited about becoming Time Warner executives and joining that party.
But that dynamic strikes me as bad for America. You don't want executives of the boring, lucrative Comcast to be able to spend their profits on becoming a glamorous content company. You want to force them into a situation where the only exciting thing they can possibly do is invest in improving their network and expanding its capacity.
Of course, you don't want people doing anti-competitive vertical mergers. But you may want to take an even harder line than that — in practical terms, do regulation via the Federal Communication Commission's broad public interest authority rather than DOJ's antitrust mandate — and say that you want them to reinvest their money in infrastructure rather than in mergers.
Stringing wires from poles and burying fiber-optic cables in the ground is a lot less exciting than producing movies, but it's a lot more important to the country that we build out the infrastructure.
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