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US DOJ outlines reasoning behind AT&T-Time Warner appeal

The US District Court’s greenlighting of AT&T’s merger with Time Warner merger was only possible because of Judge Richard Leon’s “erroneously ignoring fundamental principles of economics and common sense”, according to the Department of Justice.

Outlining the reasons for its appeal against the judge’s rejection of its case that the merger should not go through in a lengthy submission, the DOJ maintained that it had “established a reasonable probability that the AT&T-Time Warner merger would increase Time Warner’s bargaining leverage and, thus, substantially lessen competition” if the deal went through.

The DOJ said that the District Court had “discarded the economics of bargaining, and it failed to apply the foundational principle of corporate-wide profit maximization”, in concluding that this was not the case.

It said that it had “proved that a merged AT&T-Time Warner would have the incentive and ability to lessen competition by raising the costs of AT&T’s rival distributors” and referred to AT&T and its pay TV unit DirecTV’s own previous warnings to regulators that vertical integration in the pay TV business would cause “precisely this type of harm”.

The department further argued that the court’s ruling that the merger would not give Time Warner additional bargaining leverage with distributors – principally by threatening blackouts – was “implausible” and that its finding that Time Warner would not seek to maximize the profits of the combined entity by extracting higher fees from rivals was based on “self-serving testimony from defendants’ executives”. It said the ruling was “inconsistent” because the judge accepted that the merger would result in cost savings through coordination between the merging partners.

The DOJ criticized the judge for failing to take the views of customers who are also rival TV distributors into account, and for rejecting the testimony of the DOJ’s own expert witness, Carl Shapiro, accusing the court of “nitpicking” the values in Shapiro’s model.

The DOJ’s case for its appeal essentially rests on the District Court’s alleged “faulty logic” and “illogical or implausible” interpretation of the facts, citing a number of precedents to make the case that the court’s findings “should receive no deference”.

The DOJ said that the appeal was important because the outcome would “shape the future of the media and telecommunications industries for years to come by setting the standard for determining whether industry participants will be permitted to merge into vertically integrated firms that control valuable programming content as well as the means of distributing that content to consumers”.

AT&T general counsel David McAtee respoinded by saying that appeals are not “do-overs” of previous judgements and that nothing in the DOJ’s brief threatened Judge Leon’s comprehensive rebuttal of the government’s case.