AT&T-Time Warner Merger Gains Judge's Approval

The blockbuster ruling comes in a historic antitrust case that will impact the future of the entertainment and media landscape.
Mark Wilson/Getty Images
AT&T chairman and CEO Randall Stephenson (left) and Time Warner CEO Jeffrey Bewkes

U.S. District Court Judge Richard Leon has issued his blockbuster decision in the landmark antitrust lawsuit over the $80 billion merger between AT&T and Time Warner. On Tuesday, the federal judge allowed the merger to move forward over the government's challenge. In a huge win for the companies, Leon also imposed no conditions.

Ever since the U.S. Justice Department filed its lawsuit in November to block the merger, observers have been closely watching a case that on Tuesday morning the government's antitrust chief Makan Delrahim called "historic." Because of President Donald Trump's dissatisfaction with coverage by CNN (a subsidiary of Time Warner) and his skeptical remarks about the AT&T/Time Warner marriage, the case became a flash point for those suspecting that the typical independence of the Justice Department had been breached. While the federal judge didn't see evidence of Trump's interference and the focus of the case narrowed, a six-week trial held in March and April still maintained undeniable significance with the outcome sure to influence content providers and distributors interacting with each other.

The government's challenge to AT&T-Time Warner reflected a shift in Justice Department thinking. Once satisfied with extracting behavioral promises from merging parties to cure prospective competitive harm — a posture that permitted mergers to happen while also meaning ongoing regulation — the Justice Department with its lawsuit signaled that some mergers represent too much concentrated power to ever move forward. For the first time in decades, the government stood up to vertical integration; that is, a tie-up between noncompetitors who nevertheless do business with each other. In this instance, it meant a supplier and distributor, AT&T (one of the nation's largest telecoms) and Time Warner (owner of Warner Bros., HBO and the Turner networks TBS, TNT, CNN). The result of the new decision by Judge Leon, many predict, will set both legal precedence and act as a guide post for corporate executives as they pursue new handshakes on the dealmaking front. 

The trial itself presented competing visions of the media industry's future. The government argued that the AT&T/Time Warner merger would mean that consumers would have to pay hundreds of millions of dollars more for popular programming such as the NCAA Men's Basketball Tournament. Because AT&T also owns satellite TV giant DirecTV, the Justice Department trial team, led by Craig Conrath, outlined concerns that once under AT&T's thumb, Time Warner would be more willing to hold back content in licensing negotiations with cable and satellite rivals. The government also suggested that AT&T would use its new assets to hinder the growth of virtual MPVDs, meaning those digitally distributed live programming "skinny bundles."

AT&T and Time Warner, represented by a legal team led by attorney Daniel Petrocelli, argued that the government's case was flawed, and that if there was any concern about extortionate licensing demands and the possiblity of channel blackouts, it was resolved by an offer to go to arbitration with third-party distributors who couldn't come to terms over Turner programming. The defendants also put Time Warner CEO Jeffrey Bewkes and AT&T CEO Randall Stephenson on the witness stand to defend the merger as a necessary bulwark in the face of aggressive advertising competition from digital giants including Amazon, Google and Facebook and content competition from the likes of Netflix and YouTube.

Judge Leon summarized his ruling at a hearing on Tuesday. The written opinion should be following shortly.

Now that the judge has said the merger doesn't violate antitrust law, the parties move to the next phase. Although AT&T and Time Warner gave themselves a deadline of June 21 to complete the merger, the judge's opinion could be taken to the DC Court of Appeals for further review. At the hearing, though, the judge hinted he wouldn't issue a stay on the merger pending the appeal. Meanwhile, big distributors including Comcast, Verizon, Charter and others will closely read Leon's full opinion and decide how to proceed in bidding for Fox, CBS, Viacom, Discovery, Lionsgate and other content giants. Right now, it appears as though they have a green light.

AT&T applauded the decision.

"We are pleased that, after conducting a full and fair trial on the merits, the Court has categorically rejected the government's lawsuit to block our merger with Time Warner," the company said in a statement. "We thank the Court for its thorough and timely examination of the evidence, and we compliment our colleagues at the Department of Justice on their dedicated representation of the government. We look forward to closing the merger on or before June 20 so we can begin to give consumers video entertainment that is more affordable, mobile, and innovative."