Justice department says AT&T-

Time Warner ruling ignored

‘basic economics’
Filing offers glimpse of argument in appeal over
merger proposal
July 18, 2018

The judge who allowed AT&T to buy Time Warner ignored “basic economics,”
according to a US Department of Justice filing on Wednesday that indicated the
arguments with which it will attempt to unwind the $80bn merger.

The government said Judge Richard Leon, who ruled that the transaction could
go ahead, had committed “multiple errors” in his 170-page decision, specifically
in regard to the justice department’s argument that AT&T would have more
leverage in negotiations with rivals after the merger.

“The government’s case is based on well-accepted and non-controversial

economic principles of bargaining,” said the filing. “But the district court
effectively discarded those principles and their logical implication that the
merged firm will raise prices to its rivals.”

Makan Delrahim, the justice department’s antitrust chief, sued to block AT&T’s
takeover of Time Warner in November last year. The core of the DOJ’s case
concerned the bargaining dynamics in Time Warner’s negotiations with
network distributors.

The DOJ argued AT&T and Time Warner combined would have more leverage,
because any revenue lost from withholding Time Warner content from a rival
network would be offset as AT&T picked up customers who left that network.

The government claimed AT&T could therefore charge higher prices for the
content even though the threat of a blackout was typically implicit. “The
possibility of a blackout is the key to leverage,” it said in the filing on
Wednesday.

The justice department also said Judge Leon had incorrectly criticised the
government’s assumption that AT&T would attempt to maximise its parent
company’s profits as opposed to allowing its operating units to act
independently.

“This basic economic axiom of corporate-wide profit maximisation forms the

basis for much of corporate and antitrust law,” it said.

The filing on Wednesday moved for an expedited appeal process, with final
briefs due on October 18 and possibly oral arguments afterwards.

AT&T has said it is “ready to defend the court’s decision”, calling it “thorough,
fact-based, and well-reasoned”.

Photo: Fotoware