AT&T Inc. (NYSE:T)
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By Brent Kendall
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 6, 2018).
WASHINGTON -- The second run of United States v. AT&T Inc., the blockbuster antitrust fight over the telecom giant's acquisition of Time Warner, opens on a new stage Thursday as an appeals court considers whether a blunt-spoken trial judge was correct to bless the merger.
It has been six months since U.S. District Judge Richard Leon rejected the Justice Department's challenge to the $80 billion-plus deal after a six-week trial. The George W. Bush appointee said the government hadn't come close to proving that a postmerger AT&T would suppress competition in the pay-TV industry.
His 172 page opinion included a variety of demonstrative responses to the DOJ's arguments, such as "Please!" and "The answer to that question is no!" He also said a government economic theory central to the case was worse than a Rube Goldberg contraption.
Undeterred, the Justice Department is pressing ahead with its appeal, arguing that Judge Leon ignored "fundamental principles of economics and common sense" and misunderstood how pay-TV operators and content providers bargain over contracts.
Appeals in merger litigation are fairly rare, especially for the government, which in recent years hasn't lost many cases.
Though not a central part of the appeal, department officials believe recent developments support their views. AT&T raised prices on its DirecTV Now streaming service weeks after it closed the deal, and executives have said prices for some channel bundles could rise.
AT&T says recent pricing moves were dictated by market conditions and have nothing to do with the merger.
Elsewhere, HBO and Cinemax, which AT&T bought in the Time Warner deal, went dark last month on Dish Network Corp.'s satellite system after the companies failed to agree on contract terms. Each side blamed the other for making onerous demands.
AT&T says Judge Leon grasped the economics of the industry quite clearly, seeing that the evidence didn't support the government's "narrow and fragile" claims that the merger would give AT&T anticompetitive power and the ability to raise prices for TV content.
A new cast of characters will pick up the dispute when the U.S. Court of Appeals for the District of Columbia Circuit hears oral arguments Thursday. A three-judge panel, appointees of Presidents Ronald Reagan, Bill Clinton and Barack Obama, will hear the case.
The two sides have traded jabs in recent legal filings, making it clear that bad blood remains. In the opening of its appeals brief, AT&T again raised the specter of political interference by President Trump, who pledged as a candidate to block the deal and has repeatedly criticized CNN, one of Time Warner's signature brands.
The department denies that politics are behind the lawsuit, saying AT&T is raising the claim to distract from substantive issues. It also questioned AT&T Chief Executive Randall Stephenson's testimony and some of his public statements.
The AT&T lawsuit, the first major action by the Trump administration's antitrust enforcers, is one of the most consequential merger lawsuits in recent memory. It marked the first time in 40 years the government went to trial to contest a so-called vertical merger that integrated companies operating in different segments of the same industry.
The deal combined AT&T's wireless and pay-TV businesses -- including satellite service DirecTV -- with Time Warner's entertainment portfolio: the Warner Bros. movie studio, HBO and the Turner networks, which include TBS, TNT and CNN.
DOJ's primary contention was that AT&T could raise its rivals' costs by charging more for the Turner networks once it owned them. A negotiation impasse would have a silver lining for AT&T, because any potential blackout of Turner on other pay-TV systems could lead subscribers to switch to an AT&T-owned service, the department alleged.
AT&T argued it would have no additional leverage because it would lose money if Turner didn't appear widely on pay-TV lineups around the U.S.
Judge Leon agreed with AT&T. He said the company wouldn't have newfound bargaining leverage, adding that rivals could compete for subscribers even without Turner channels on their lineups.
Several third parties have filed briefs in the appeal. Consumer groups backed DOJ, as did the American Cable Association, a trade group for smaller cable operators. The Federal Communications Commission also filed; it didn't take a position on the merger, but it said Judge Leon improperly discounted the evidentiary value of comments AT&T and DirecTV had submitted to the commission before the deal. That position could provide at least a small boost to DOJ.
In an unusual move, a bipartisan group of 10 states filed a brief in support of AT&T, saying the deal would benefit consumers. The U.S. Chamber of Commerce and other business groups also filed in support of AT&T.
Many legal analysts believe the Justice Department faces a tough road on appeal because appeals courts generally afford some deference to trial judges.
If the government were to prevail, the case would likely return to the trial court to determine what would happen to the merger, including the possibility that it could be unwound.
AT&T has worked quickly to put its stamp on the new film and television business, which it renamed WarnerMedia, though it agreed in June to temporary rules that would make it easier to unwind the deal if a higher court reverses Judge Leon's decision. Those conditions expire on Feb. 28.
--Drew FitzGerald contributed to this article.
Write to Brent Kendall at firstname.lastname@example.org
(END) Dow Jones Newswires
December 06, 2018 02:47 ET (07:47 GMT)
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