AT&T gets to buy Time Warner in legal win over Justice Department

The mega-media merger is happening.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
6 min read
Richard Levine

Daenerys Targaryen, Superman and Harry Potter are all headed to AT&T after all.

AT&T won the right to complete its $85 billion takeover of Time Warner, which includes various media properties such as DC Entertainment and HBO, after US District Judge Richard Leon on Tuesday declined the Justice Department's request to block the deal. Leon also didn't impose any conditions on the deal, giving AT&T and Time Warner what amounts to a total victory in the case.

AT&T CEO Randall Stephenson Discusses Justice Dept. Lawsuit Over Company's Time Warner Merger

AT&T CEO Randall Stephenson argued the company's proposed $85.4 billion takeover of Time Warner is necessary to compete against companies like Amazon, Facebook and Google.

Amir Levy / Getty Images

The merger, which combines one of the largest communications network providers with a major player in the entertainment market, is poised to shake up the media world. It may immediately trigger another deal between Comcast and Fox, which already has an agreement to sell its entertainment assets to Walt Disney. The deals come at a time when traditional media and internet service providers see online giants like Google and Facebook as the key competitive threat.

Watch this: AT&T fends off Trump's DoJ fight to block Time Warner merger

For AT&T, the ruling marks a huge win in its bid to transform itself into a media powerhouse. In 2015 it purchased satellite TV provider DirecTV for nearly $49 billion. 

AT&T applauded the court's decision. The company said it plans to close the merger, which was announced a year and a half ago, on or before June 20.

"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," David McAtee, AT&T's general counsel, said in a statement. 

The ruling is also a major blow to Donald Trump's Justice Department. Assistant Attorney General Makan Delrahim, who heads up the antitrust division, said in a statement he's disappointed in the court's decision, and he reiterated the government's belief that the merger will harm consumers.

"We continue to believe that the pay-TV market will be less competitive and less innovative as a result of the proposed merger between AT&T and Time Warner," he said in the statement.  "We will closely review the court's opinion and consider next steps in light of our commitment to preserving competition for the benefit of American consumers."

Ripple effects

The trial was closely watched, as the fate of the deal was expected to have ripple effects on future deals and on everyone from media giants to streaming-service providers. A loss for AT&T and Time Warner could have signaled a new era of government scrutiny over so-called vertical mergers and halted attempts by companies like Disney, Fox and Comcast to announce their own megadeals. This decision could put more pressure on companies like Amazon, Netflix and Google's YouTube, which have been competing with traditional media companies for eyeballs.

AT&T, which has invested heavily in a streaming-video service called DirecTV Now, is free to bulk up its original programming with Time Warner content.

One of the biggest surprises in the judge's decision is the lack of conditions put on the deal. There was no divestiture of assets from AT&T or Time Warner. And there were no behavioral conditions, like the ones Comcast agreed to in order to get its NBC Universal deal approved.  Instead, Leon rejected each of the Justice Department's arguments against the deal, concluding that "the Government has failed to meet its burden to establish that the proposed, 'transaction is likely to lessen competition substantially.'"

"I'm surprised that AT&T won this without any conditions," said Ketan Jhaveri, former antitrust attorney for US DOJ Telecommunications Task Force and co-CEO of legal tech platform Bodhala. "I would have thought the judge would have ordered a targeted divestiture."

Still, Jhaveri conceded the government's case was an "uphill climb." 

The government argued during the trial that if AT&T were to own Time Warner, it could violate antitrust law by using its market power to get higher prices from TV distributors. It could also threaten to withhold content from Time Warner channels -- such as CNN, HBO and TNT -- from rival services to gain a competitive advantage for AT&T's TV services. Ultimately, the government argued, this would harm competition and innovation as well as raise prices for consumers.

AT&T and Time Warner dismissed the government's concerns. Instead, they argued that the media industry is going through a massive change as fewer people subscribe to pay TV services and instead stream content via the internet. Online companies like Amazon, Google and Netflix have emerged as alternatives to the cable industry, with both distributing and creating their own content. To compete against these giants, Time Warner likely would need AT&T's distribution network of broadband and wireless customers.

In addition to the shifting media sands, there's a backdrop of intense competition in the wireless business. AT&T, the nation's second-largest wireless service provider by subscribers, is looking for a new area of growth. All this competition among network providers and content creators has been great for consumers, but it's hurting AT&T's bottom line. And to stay competitive, AT&T CEO Randall Stephenson said during the trial, the company needed a big deal.

Stephenson said at the time that the merger with Time Warner was a "significant shift in strategy" for AT&T, explaining that the company knew smaller acquisitions for content wouldn't work. He said the company needed to take a giant leap into the content business.

"We knew we had to have scale," he said, according to Variety.


Some critics of Trump have questioned whether the case was brought as political payback against Time Warner's CNN for what was perceived as unfavorable coverage of Trump, who often calls the cable news channel's output "fake news."

As a candidate for president, Trump vowed to block the merger, saying it would concentrate too much power in one company.

Democrats on Capitol Hill have raised questions about the Justice Department's motivations and the White House's influence in deciding to take the case to court. In February, Rep. Elijah E. Cummings, the ranking member of the House Committee on Oversight and Government Reform, and Rep. Gerald E. Connolly, the ranking member of the Subcommittee on Government Operations, sent a letter to Attorney General Jeff Sessions asking for documents and emails between the Justice Department and the White House about the decision to sue AT&T and Time Warner. Sessions didn't comply with the request.

The Justice Department had repeatedly suggested the judge consider forcing AT&T to divest some of Time Warner's cable channels.

But AT&T rejected that idea, stating in a court filing that "divestitures here would destroy the very consumer value this merger is designed to unlock."

What's next?

The government could appeal the decision. But in his opinion Leon warned that it's unlikely the court would grant the Justice Department a stay that would postpone the merger between AT&T and Time Warner. The companies face a deadline of June 21 to complete the merger. If the deadline is not met, it would likely result in the deal falling apart and AT&T paying a $500 million breakup fee to Time Warner. Without a court order delaying the merger, AT&T says it'll close the deal on or before June 20.

The appeal process, if the government decides to pursue it, would be a lengthy one. The Justice Department says it's reviewing the decision and evaluating its options. 

Consumer advocates, who opposed the deal, urged the Justice Department to appeal the decision. Gigi Sohn, an adviser to former FCC Chairman Tom Wheeler, said that "big media conglomerates are the winners and consumers are the losers" with the judge's decision. 

 "Merging AT&T, one of the largest cable, satellite and mobile broadband companies with Time Warner will lead to higher prices, fewer choices and perhaps more importantly, fewer voices," she said. "Coupled with the demise of the 2015 net neutrality rules yesterday, AT&T will be free to favor Time Warner content over its cable and its fixed and mobile broadband networks."

First published June 12, 1:46 p.m. PT
Update, 3:46 p.m. PT:
Adds background and information from the judge's opinion. 

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