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AT&T-Time Warner Deal Draws Decidedly Mixed Emotions

Consolidation critics were discouraged by the Justice Department smackdown.

Reactions flooded in yesterday after a judge said AT&T and Time Warner could merge, no conditions applied, and smacked down the Justice Department’s case in the process.

The Competitive Enterprise Institute said the judge got it right. “Today’s decision is a win for consumers. The government failed to offer persuasive evidence that the transaction would harm competition or consumers.

See: AT&T, Time Warner Cleared to Merge

“Meanwhile, America’s media sector has experienced a wave of deconsolidation and entry over the past three decades, so today’s decision is a return to normalcy,” the group said. “Original video production is at an all-time high, a trend that industry observers have long recognized is unsustainable.

“By joining forces,” the institute continued, “AT&T and Time Warner will be better positioned to monetize content, in turn incentivizing the merged company to invest more in original programming. Meanwhile, satellite and cable providers such as Comcast, Charter/TWC, Cox, and Dish Network remain well-positioned to bargain aggressively with AT&T-Time Warner over the price of content. And with stand-alone internet video offerings such as Hulu, Amazon Prime, and Netflix all competing aggressively, there’s no shortage of competition in the streaming space.”

See: Flurry Of Deals Now Expected, Beginning With Comcast-Fox

To Theodore Bolema, senior fellow with free market think tank Free State Foundation, “This challenge by the Department of Justice was a throwback to the 1970s and earlier, when vertical mergers were challenged using dubious theories of economic harm. Judge Leon was correct in finding that the government failed to plausibly show that AT&T would pay $85 billion to buy Time Warner only to damage the Time Warner assets by withholding programming from competitors to help AT&T’s other business interests.”

“Hopefully,” Bolema continued, “when the DOJ is evaluating upcoming acquisitions, like Comcast’s bid to acquire Twenty-First Century Fox assets, it will follow the example of both Republican and Democratic administrations and only challenge vertical mergers, if at all, if the case is supported by sound economic analysis.”

The Communications Workers of America, which backed the deal last year, continued to support it as a vehicle for more jobs.

“The Communications Workers of America congratulates AT&T for its court victory today winning approval for its acquisition of Time Warner,” the union said in a statement. “We encourage the Justice Department to respect Judge Leon’s decision and allow the merger to proceed. Last year CWA expressed support for this merger with the full expectation that it would lead to the creation and protection of good jobs in the United States, especially jobs that enable working people to negotiate a fair return on their work. CWA also expects increased investment in our communities through improved services and benefits for consumers.”

Newsmax CEO Chris Ruddy was also OK with the deal, but took the opportunity to contrast it with one he is working hard to block. “While the AT&T merger raised some legitimate questions of media concentration, the opinion of the federal judge today should put the matter to rest,” said Ruddy. “AT&T will also be a good custodian of CNN.”

However, he noted, “The AT&T merger pales in comparison to the Sinclair-Tribune merger, which effectively guts network ownership caps and will allow for the most massive concentration of broadcasting power in history. The FCC’s and DOJ’s unusual green lighting of the Sinclair deal is completely inconsistent with the government’s opposition to the AT&T deal and raises questions about fairness and political favoritism.”

But there were plenty of folks lining up to take aim at the decision, including smaller cable ops, edge providers and consolidation critics.

Related: Charlie Ergen: Approval Could Create Deal Flood or Famine

Sen. Amy Klobuchar (D-Minn.) wants the government to fight the ruling.

“Allowing this merger to proceed raises serious concerns for consumers and the future of American media, and also sends a troubling signal to others that it’s open season for vertical mergers that could allow a company to raise the cost of essential products and services that its rivals need to compete, leading to higher costs for consumers and less innovation,” she said. “I urge the Justice Department to take swift action to appeal this judgment to ensure that competition and consumers are protected.”

Related: DOJ’s Delrahim Says Speech Tests Have No Place in Antitrust

Justice at press time had signaled it would have to review the decision first, but the judge picked apart the government’s case and witnesses.

Also in the disappointed camp was the American Cable Association.

“The Court’s decision runs counter to numerous findings over the past 15 years by the Federal Communications Commission (FCC) and Department of Justice (DOJ) that vertical combinations between video programmers and distributors require robust conditions to constrain the incentive and ability of the combined firm to raise prices to rivals and reduce choice,” the group said. 

“For these reasons,” ACA continued, “the Court’s opinion is out of the mainstream. The FCC and DOJ should continue to rigorously review existing and proposed vertical combinations and impose sufficient remedies to offset their harms.”

Cable provider Cox Communications is hoping its customers and interests won’t be hurt by the rollup: “We participated in the review process and expressed concerns about exclusive content and how that could unfairly tilt the competitive playing field and negatively impact consumer choice and pricing,” the company said. “We hope the government keeps a close eye on the merged company’s activity to ensure that consumers are not harmed. We’ll continue to aggressively invest in our network and products to compete in the communities we serve.”

“AT&T is getting the merger no one wants, but everyone will pay for,” added Chip Pickering, CEO of INCOMPAS, whose members include competitive carriers and edge providers. “While the world focused on the merger, AT&T has been lobbying the FCC to cut off broadband competition in rural America and raise prices on consumers, small businesses and schools.”

Pickering suggested that the FCC’s elimination of net neutrality regs this week exacerbated the threat.

“Without question, a bigger, more powerful AT&T in a world absent net neutrality is a very, very dangerous proposition for consumers and content creators who have thrived during the streaming revolution,” he said.

As Robert Weissman, president of Public Citizen sees it, “Judge Richard Leon just slammed the phone on American consumers and American democracy. Not only will this merger deny choice and lead to higher prices for American consumers, it will weaken the economy by diminishing innovation in video distribution and content.”

“Equally worrisome,” he added, “it will spur a new wave of mergers that will give a small number of giant corporations an even greater chokehold over our economy and democracy.”

Michael Copps, former FCC Commissioner and Common Cause special adviser, also commented.

“Justice denied is consumers skewered,” said Copps. “This is a horse-and-buggy decision blind to today’s communications marketplace. The court’s decision blessing of the AT&T/Time Warner merger creates a communications behemoth that will raise prices for consumers, curb innovation, and reduce the amount of independent and diverse programmers in the video marketplace.”

John Bergmayer, senior counsel at Public Knowledge, joined the chorus of boos from consolidation critics.

“This is a disappointing result, and we expect the government will appeal,” he said. “In the meantime, not only may consumers be harmed directly by the anticompetitive harms that this merger will cause, such as higher bills and fewer choices of programming and provider, but also by the many other mergers it will encourage.”

To Senator Ed Markey (D-Mass.), “This ruling is an assault on consumers, choice, and innovation. The telecommunications market needs more competition, not more consolidation. We need a telecommunications market where pay-TV gatekeepers don’t favor their own content providers, but allow minority, diverse, and independent programmers to reach Americans’ screens. I fear this decision will only further fuel merger mania in the telecommunications and other markets.”

Markey, too, tied the decision to the FCC’s rollback of net neutrality rules. “Today’s decision underscores the need to restore robust net neutrality rules, so broadband providers like AT&T cannot use their gatekeeper role to harm competing services and content,” he said. 

Joshua Stager, policy counsel at New America’s Open Technology Institute, echoed the senator’s sentiments. “Today’s ruling is a loss for consumers and the American economy,” he said. “The telecommunications market is badly broken, and this merger will only make it worse. AT&T is a serial offender on net neutrality and the poster child for destroying competitive markets. The Justice Department was right to bring this case on behalf of the American people and right to recognize that vertical deals can threaten innovation.Ultimately, this is just one case decided by one judge, and an appeal is likely. Today’s ruling also underscores why Congress must restore the net neutrality rules that helped keep AT&T in check.”

The Writers Guild of America West agreed.“Today’s decision is a blow to consumers, content creators and competition. The WGAW knows too well the harms of vertical mergers and welcomed the DOJ’s efforts to block this one.”

“Unfortunately,” the union continued, “a combined AT&T-Time Warner, like so many mergers before it, will lead to higher prices and fewer choices. Further, it will pave the way for more anti-competitive mega-mergers, like the forthcoming Comcast-NBCU-Fox tie-up. This ruling, coupled with the government’s abdication of open Internet protections yesterday, means the future of the Internet and content distribution is in the hands of a few, increasingly consolidated and powerful corporate gatekeepers. The approval of this merger makes clear that Congress must pass legislation that unambiguously protects competition in the face of vertical consolidation.”