Some Explaining Needed on AT&T-Time Warner Deal
President Donald Trump's new head of antitrust enforcement, Makan Delrahim, has set the business world wondering: Why would he stand in the way of an $85 billion merger between AT&T Inc. and Time Warner Inc.?
Actually, he might have a good reason. But if he does, he ought to explain it more persuasively than he has so far. The policy he's advocating is a departure from standard practice -- and, consistently applied, it would have far-reaching consequences for the U.S. economy.
This deal had looked on track for quick approval. Delrahim himself said he didn't see a "major antitrust problem." Now, however, his division at the Justice Department is reportedly demanding big concessions, such as the divestment of Turner Broadcasting, which owns CNN, or of DirecTV, AT&T's satellite television business. This has aroused the suspicion that Delrahim is doing the bidding of Trump, who dislikes CNN and has publicly criticized the deal.
Set politics aside for a moment, and consider the merits. What legitimate concerns might Delrahim have? For the most part, Time Warner and AT&T aren't in the same business: One produces news and entertainment, the other distributes that content to consumers. Combining the two could create cost and other efficiencies that would ultimately benefit consumers.
These so-called vertical mergers are generally seen as less troublesome than the horizontal kind, which bring direct competitors under common ownership. Yet vertical integration can hinder healthy competition in subtler ways. The combined company could, for example, make it harder for rivals of CNN to reach AT&T's 25 million pay-TV customers -- say, by banishing them to the bottom of the channel lineup. It could also put AT&T's competitors, such as Comcast Corp. or Verizon Communications Inc., at a disadvantage by withholding or charging a premium for CNN.
For the past couple of decades, in cases like these, the Justice Department has typically taken a minimalist approach to the problem -- at most requiring companies to behave themselves, and watching to make sure they do. But Delrahim has suggested he'd rather eliminate the opportunity for anti-competitive behavior by requiring divestitures. In the case of AT&T and Time Warner, that would mean selling DirecTV or Turner Broadcasting.
Reasonable people can disagree about this. Consent agreements can work: Although companies do violate them, the harmed parties tend to have the resources needed to protect their interests. (Bloomberg LP, parent of Bloomberg News, won such a case against Comcast in 2013). On the other hand, divestitures are simpler, and require less litigation. U.S. industries are becoming increasingly concentrated; this too might argue for the more forthright approach.
The AT&T-Time Warner case can't be judged in isolation. Insisting on divestment in vertical mergers would be a marked departure from previous practice, with big implications for other industries. Delrahim needs to fully justify this change of policy, not least to quell doubts about his motives. If he can't, he should let the deal go through.
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