Appeals court upholds AT&T-Time Warner merger

A federal appeals court on Tuesday rejected the Department of Justice’s (DOJ) challenge of a lower court decision to approve the $85 billion AT&T-Time Warner merger, clearing the way for the deal to go through.

A three-judge panel for the District of Columbia District Court of Appeals called the government’s argument against the megadeal “unpersuasive.”

AT&T hailed the decision which comes more than two years after the merger was first proposed.

{mosads}“The merger of these innovative companies has already yielded significant consumer benefits, and it will continue to do so for years to come,” AT&T general counsel David McAtee said in a statement.

“While we respect the important role that the U.S. Department of Justice plays in the merger review process, we trust that today’s unanimous decision from the D.C. Circuit will end this litigation,” he added.

The ruling is a major defeat for the DOJ’s antitrust division, which gambled on suing to block the deal more than a year ago, in what was the first government challenge to a vertical merger — a tie-up between companies that don’t directly compete — in decades.

The DOJ said it would not appeal the decision.

“We are grateful that the Court of Appeals considered our objections to the District Court opinion. The Department has no plans to seek further review,” DOJ spokesman Jeremy Edwards said in a statement.

AT&T and Time Warner announced the merger in October 2016.

The deal was controversial from the start with consumer advocates who worried that it would give AT&T the ability to withhold Time Warner content from competitors or make them pay more for it.

And President Trump, still a candidate at the time the deal was announced, pledged to block the merger over concerns that it concentrated too much media power into one company.

His statement led to accusations that the administration was pursuing a legal challenge to the merger as part of the president’s feud with CNN — a subsidiary of Time Warner. Trump has long accused CNN of unfair coverage of his administration.

Attorney General William Barr, sworn in earlier this month, was until recently a member of Time Warner’s board of directors. He told Congress that he would recuse himself from the case.

The Justice Department argued that the merger would give AT&T, the largest pay-TV provider in the country, the ability to use Time Warner’s popular programming to gain leverage in negotiating distribution deals with other providers, resulting in higher prices being passed on to consumers. The administration sued to block the deal.

After a six-week court battle, Judge Richard Leon of the U.S. District Court in D.C., a George W. Bush appointee, in June  approved the merger unconditionally in a complete rejection of the government’s arguments.

The Department of Justice appealed Leon’s decision, arguing that he had ignored “fundamental principles of economics and common sense.”

But the panel of appeals court judges wrote on Tuesday that the government had failed to show that Leon had erred in making his ruling.

While the appeals court acknowledged that the trial judge in his legal reasoning had “made some problematic statements, which the government identifies and this court cannot ignore,” it was not enough to overturn his decision.

Critics of media consolidation who opposed the deal said the government should learn from its defeat in the merger battle.

“While the outcome is not what we would have wanted, the court does acknowledge certain errors and omissions made by Judge Leon, and the opinion’s scope is limited to a highly specific set of facts and arguments that were discussed during the trial,” said John Bergmayer, senior counsel with the consumer group Public Knowledge.

“The opinion should not be read as a broad endorsement of Judge Leon’s rose-colored view of the video marketplace, and it provides guidance for how the government can successfully challenge future anticompetitive vertical mergers.”

Sen. Amy Klobuchar (Minn.), a presidential candidate and the top Democrat on the Senate Judiciary antitrust subcommittee, called the decision a “setback for competition and American consumers.” 

“While I would support Justice Department efforts to pursue further appeals, I also strongly urge the Department to commit to conducting follow-up retrospective reviews of the markets affected by this merger to determine if further enforcement action is warranted,” Klobuchar said in a statement.

AT&T argued that the merger is necessary for the telecom company to compete in an evolving programming industry that has quickly become dominated by internet giants. The company would be able to combine its troves of consumer data with Time Warner’s popular programming — which includes HBO, CNN, TNT and TBS — to compete for online advertising dollars that have been increasingly funneled to Google and Facebook.

Both the district and appeals court agreed with AT&T that the pay-TV market had become more competitive with the rise of streaming video companies such as Hulu and Netflix.

The merger closed just days after Leon’s ruling and AT&T rebranded Time Warner as WarnerMedia, but the combined company had been operating under conditions that would have made it easier to reverse the merger if the appeal had gone the other way.

The decision on Tuesday will allow WarnerMedia to move forward with its plans to roll out its own streaming services.

In the months since the two companies combined, carriage negotiations between HBO and Dish Network deteriorated, resulting in HBO pulling its programming from the company’s services, including Sling TV. It was the first blackout in HBO’s history.

Updated at 4:26 p.m.