(Bloomberg) -- AT&T Inc. and the U.S. Justice Department had six weeks of courtroom testimony and hours of closing arguments on whether the company’s proposed takeover of Time Warner Inc. should be allowed. Both sides are still going at it.
Here are some highlights:
From the Justice Department
- AT&T’s takeover of Time Warner would completely change the dynamics of Time Warner’s programming negotiations with cable and satellite-TV companies. Today, Time Warner wants its programming, such as CNN and TNT, distributed widely. After the deal, AT&T can use the programs as "a weapon" against rivals of its DirecTV unit by raising prices, restricting its use, or denying it outright to online competitors.
- AT&T might dispute this harm would ever happen, but the company has recognized it’s a possibility when a programmer and a distributor combine. AT&T’s internal documents recognize that such a vertical deal increases bargaining leverage for the integrated firm. And in a filing with the Federal Communications Commission, AT&T said a vertically integrated programmer can use content "as a weapon to hinder competition."
- If there’s a blackout of Time Warner programming on a rival cable company, the rival will lose subscribers to DirecTV. It also won’t be able to attract AT&T subscribers who may otherwise have switched to the rival. "As an inevitable consequence of such a blackout, the AT&T subscribership base will grow over time."
- The model relied on by the U.S.’s economic expert, Professor Carl Shapiro, is standard and was used by AT&T when it sought FCC approval for its acquisition of DirecTV.
- AT&T’s economic expert, Professor Dennis Carlton, didn’t present his own model. "Instead, he simply took potshots at inputs to Professor Shapiro’s model, used cherry-picked data provided by AT&T, and failed to address the many undisputed ways those inputs conservatively estimated actual incentives."
- Antitrust law doesn’t require the government to precisely project the magnitude of harm from a merger. The U.S. only has to show a "reasonable probability" of harm to competition. "The model confirms, and builds on, the testimony of industry participants and economic logic, all of which points to higher costs for AT&T’s rivals and consumers."
- AT&T is relying on "FAANG straw man" defense by arguing the deal is necessary to compete against Facebook, Apple, Amazon, Netflix and Google. "Defendants seem to be asking the court to find another defense to an illegal merger: ‘we are getting killed by new competition in different markets.’"
- The court should reject AT&T’s arbitration offer made to distributors, which doesn’t protect competition, and either block the takeover or order a "targeted divestiture" of either Turner Broadcasting or DirecTV.
- Links to U.S. post-trial brief, proposed conclusions of law, and proposed findings of fact.
From AT&T and Time Warner
- The Justice Department "did not even begin to make a credible case that the merger would likely harm competition, substantially or even just a little.”
- Trial evidence "demolished" the U.S. claim that AT&T would use Time Warner’s Turner Broadcasting content as a "weapon" against rival pay-TV distributors by threatening to withhold it. The government conceded that Turner "would not, in fact, ever withhold content, thereby conceding away any prospect that Turner could ever credibly threaten to withhold."
- Broad distribution is critical to Time Warner. "It is an uncontested fact -- not hypothesis or speculation -- that Turner cannot financially tolerate the loss of programming deals and so cannot wield a serious threat of walking away from the table."
- The government’s own model showed a price decrease for all consumers "once the correct data were employed."
- The government’s case rests "heavily on predictable complaints from AT&T rivals whose real concern was to avoid the increased competition the merger would create --precisely why antitrust authorities discount competitor objections in merger analysis."
- Shapiro’s model "collapsed at trial" when confronted with real-world evidence and relied on data that were "outdated, manipulated, and overstated." Even taken at face value, the predicted monthly price increase is so small it is "statistically indistinguishable from zero."
- Pointing out these errors isn’t "nitpicking" as the government claims. "It shows that the projected price increase is so minute and fragile that even the slightest adjustment to its inputs erases its effects. This is not a ‘death by a thousand cuts’ -- here, it takes only one or two."
- The deal will help AT&T compete more effectively against Facebook, Amazon, Apple, Netflix and Google. Specifically, it will allow for targeted video advertising that can challenge the digital advertising duopoly of Google and Facebook. "The government’s case seeks to control that future by keeping traditional providers restricted to traditional models while FAANG companies drive innovation. But it is not the government’s role to use antitrust laws to pick winners and losers -- especially when the competitive field itself is the midst of a historic transformation."
- Links to AT&T’s post-trial brief and proposed findings of fact and conclusions of law.
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