US sues to stop AT&T buying Time Warner

WASHINGTON: The US Department of Justice sued AT&T Inc on Monday to block its $85.4 billion acquisition of Time Warner Inc, saying the deal could raise prices for rivals and pay-TV subscribers while hampering the development of online video.
The lawsuit is the first major challenge to a merger by the administration of US President Donald Trump, who has repeatedly criticised Time Warner’s CNN news unit and announced his opposition to the deal before the election last year, saying it would concentrate too much power in AT&T’s hands.
The Justice Department is arguing that AT&T would use Time Warner’s films and movies to force rival pay-TV companies to pay “hundreds of millions of dollars more per year for Time Warner’s networks” in the lawsuit filed late on Monday in federal court in Washington.
The government cited documents where AT&T and its satellite broadcast unit DirecTV described the traditional pay-TV model as a “cash cow” and “golden goose,” suggesting customers were at risk of price hikes.
The 23-page complaint also said the deal would slow the industry’s transition to online video and other new distribution models.
AT&T, which sees the deal as a way to compete against emerging technology companies such as Netflix Inc and Inc’s Prime Video, described the lawsuit as ”a radical and inexplicable departure from decades of antitrust precedent.”
AT&T head lawyer David McAtee said vertical mergers, between companies on different steps in a supply chain, are routinely approved.
“We see no legitimate reason for our merger to be treated differently,” said McAtee, adding that AT&T is confident a judge will reject the Justice Department’s case. The Obama administration approved a similar vertical deal in 2011 to allow cable company Comcast Corp to acquire NBC Universal.
AT&T Inc is prepared to go to trial as soon as possible, lead trial counsel Daniel Petrocelli, a partner at O’Melveny & Myers, told reporters on Monday.
The legal challenge ramps up hostilities after AT&T rejected the Justice Department’s demand earlier this month to divest DirecTV or Time Warner’s Turner Broadcasting — which contains news network CNN — in order to win antitrust approval.
The move may be a sign that the Trump administration will look closely at other big mergers.
Time Warner’s shares dropped 1.1 per cent to close at $87.71, while AT&T shares closed up 0.4 per cent at $34.64.
The deal has been a political lightning rod since it was hatched in October 2016. During his campaign, Trump said that reporters covered him unfairly and has continued to attack CNN as president, which he has labelled as “fake news.” He has not commented on the AT&T deal since his inauguration in January.
US Attorney General Jeff Sessions declined to say last week if anyone from the White House had discussed the merger with any Justice Department officials.
The number 2 US wireless carrier is trying to buy Time Warner, which also owns the premium channel HBO and movie studio Warner Bros, so it can bundle video entertainment on its mobile service.
The Justice Department’s lawsuit cited internal Time Warner documents that said long-term contracts to show live sporting events like college basketball and baseball would help allow it to achieve “targeted rate increases.”
The lawsuit also said AT&T and Comcast “would have an incentive and ability to harm competition by impending online competitors they consider a threat.” — Reuters