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DOJ Makes Last Stand Against AT&T

Mari Silbey

As its trial with AT&T wraps up, the DOJ is making a final attempt to convince a judge that the telco shouldn't be allowed to acquire media company Time Warner. If the court disagrees, then the government hopes it will at least impose conditions on the merger, including possibly the divestiture of Time Warner's Turner Networks.

The Antitrust Division of the U.S. Department of Justice has proposed this course of action before. Prior to blocking the deal directly, the government suggested to AT&T Inc. (NYSE: T) that it take Turner Networks off the table, but CEO Randall Stephenson has been adamant about retaining the Time Warner Inc. (NYSE: TWX) property. (See DoJ Sues to Block AT&T/Time Warner and DOJ Brings Timeline Trouble to AT&T-TW Deal.)

Complicating matters is the fact that Turner network CNN is on President Donald Trump's hit list. While the current White House administration is generally more favorable to big business, Trump did promise during his candidacy to block the AT&T deal, and some observers worry it's because of the president's personal feelings toward the news network that the merger is now facing a government challenge.

The DOJ maintains that is not the case.

Returning to the current court proceedings, AT&T is arguing that there is no antitrust issue with the deal because the transaction is a vertical merger rather than one where the telco is swallowing up a direct competitor. But the DOJ counters that position by saying that the transaction is still likely to lead to higher prices.

The government has repeatedly stated that AT&T could withhold popular Turner networks (like CNN, but also sports-focused TNT) from rival service providers in order to drive up fees. According to The Wall Street Journal, the DOJ raised the issue again in closing statements and used the opportunity to present the idea of selling off Turner as a condition of the merger.

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Much rides on the court's decision in the AT&T trial. In addition to the direct impact on AT&T and Time Warner, which have both said they need the deal to compete in the TV entertainment space, there will be effects throughout the industry as other service providers plan their next moves.

With the announcement that Sprint Corp. (NYSE: S) and T-Mobile US Inc. plan to merge, all eyes will be on the AT&T decision as a possible augur of regulatory intervention to come. (See T-Mobile to Buy Sprint for $26.5B to Create US 5G Powerhouse and T-Mobile & Sprint: Marriage Made in Hell.)

Likewise, if AT&T does pull off the transaction, rival cable companies will likely look at whether they need to follow the same path.

Comcast Corp. (Nasdaq: CMCSA, CMCSK) already owns NBCU and has put in a bid for Sky (NYSE, London: SKY) and its content assets in the UK. (See Why Sky's the Limit for Comcast and Comcast Bids $31B to Steal Sky From Fox, Disney.)

Charter Communications Inc. , Cox Communications Inc. and Altice USA have not focused as heavily on content ownership, but might reconsider that strategy if faced with the behemoth of AT&T-plus-DirecTV-plus-Time-Warner.

— Mari Silbey, Senior Editor, Light Reading

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