Trump Gambles and Loses on AT&T

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By The Editorial Board- The  New York Times

The editorial board represents the opinions of the board, its editor and the publisher. It is separate from the newsroom and the Op-Ed section.

President Trump’s chilling campaign to politicize the Justice Department ran into a stinging rebuke on Tuesday as a federal judge broadly rejected the government’s attempt to block AT&T’s $85.4 billion acquisition of Time Warner. Appearing to pander to the president’s hostility to much of the news media, the department’s antitrust division embraced a radical legal strategy that backfired, depriving every American of the responsible oversight that such a far-reaching merger required.

Tuesday’s ruling will probably unleash a new wave of deal making on Wall Street, in Hollywood and in Silicon Valley. As the media, telecommunications and technology industries continue to reshape both themselves and the lives of billions of people around the world, the consistent and fair application of American competition policy remains essential to foster innovation and the interests of everyday consumers. One can only hope that in the wake of Tuesday’s defeat, federal authorities return to the principles that helped the United States become the world’s engine of creative invention.

President Trump’s antagonism toward the news media — particularly CNN, one of Time Warner’s crown jewels — is one of the defining aspects of his political identity. Hours before AT&T and Time Warner announced their deal in October 2016, then-candidate Trump vowed that his administration would try to block it.

And yet once the Justice Department actually sued AT&T last November to stop the merger, the administration insisted that the president had nothing to do with it. The official line was that the White House had no contact with the department’s antitrust division about the deal and did not influence its decision to sue.

Leave it to Rudolph Giuliani, the president’s personal lawyer, to baldly contradict the White House’s story and reveal the truth. “The president denied the merger,” Mr. Giuliani told HuffPost last month. “They didn’t get the result they wanted.”

Mr. Giuliani eventually attempted to walk back his statement (without actually retracting it), but the damage had been done. The prospect that the administration has been using antitrust law to punish the president’s opponents while rewarding those he views as friends is alarming.

The AT&T-Time Warner merger has certainly required close scrutiny. Through its cable and satellite DirecTV operations, AT&T is the nation’s No. 1 pay-television provider, with more than 25 million subscribers. (Comcast is second, with about 23 million cable customers.) AT&T is also the No. 2 wireless carrier, behind Verizon. Time Warner, meanwhile, controls some of the most popular television networks, including HBO, TBS and TNT, in addition to CNN. The prime concern is that a combined AT&T-Time Warner could jack up the rates it charges other TV distributors for content, increasing prices for consumers.

In antitrust lingo, this deal represents a classic example of vertical integration: The companies have a “vertical” relationship where one company — Time Warner’s networks and studios — supplies the other — AT&T’s distribution operations. However, the two companies’ main businesses do not actually compete with each other and so a merger would not reduce the number of competitors in any particular market.

By contrast, deals like T-Mobile’s $26.5 billion agreement to acquire Sprint announced in April are known as horizontal mergers. The two companies are direct competitors in the wireless phone market and their combination would reduce the number of primary national wireless carriers from four to three.

The Trump administration’s suit to block AT&T’s acquisition of Time Warner was a suspiciously sharp, even radical, departure from modern antitrust policy because, since the early 1980s, federal courts and authorities have extended broad deference to vertical mergers while reserving aggressive challenges for horizontal deals that more clearly imperil consumers. Tuesday’s decision by Judge Richard Leon of United States District Court was clearly in line with established antitrust precedent. Before Tuesday, the government had not even brought a vertical antitrust suit to conclusion in decades.

That is probably why Makan Delrahim, then a Pepperdine University law professor, said when the deal was first announced, “I don’t see this as a major antitrust problem.” But then Mr. Delrahim became chief of the antitrust division under a president who despises CNN, and his tune changed. Suddenly, the deal represented a major threat to American consumers and had to be stopped.

Rather than attempt to block vertical mergers outright, antitrust authorities in recent decades have instead focused on forcing the companies to curtail potentially anticompetitive behavior. For example, when Comcast acquired NBCUniversal in 2011 (a deal quite similar to AT&T-Time Warner’s), the Justice Department reached a sensible settlement requiring the combined company to abide by a broad array of conditions to protect competition. That agreement was overseen and approved by none other than Judge Leon, who ruled against the government on Tuesday.

Those Comcast-style provisions have appeared reasonably effective. Neither Comcast nor AT&T nor any other old-school media or telecommunications company has been able to hold back the relentless march of internet video behemoths like Amazon, Netflix and YouTube. In fact, the tech giants’ media operations are already vertically integrated; Amazon and Netflix spend billions of dollars a year developing video content and then distributing it themselves through different systems and services.

Mr. Delrahim could have pursued such conditions with AT&T and Time Warner. Unwisely, he didn’t. The big risk in the government’s litigation strategy was that if it lost, AT&T could acquire Time Warner without any such pro-consumer provisions at all. That is exactly what is happening.

The rule of law is at least as important in business as it is in politics. As Tuesday’s ruling potentially unleashes a new round of corporate consolidation, the most important concern remains insulating the application of antitrust law and competition policy from the whims of partisans.

Consumers and the vitality of the economy’s most dynamic sectors depend on it.

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