The biggest corporate acquisition of the year is inching closer to resolution. With President Trump's top antitrust official, Makan Delrahim, getting up to speed in his new job, many analysts predict the Justice Department could rule on AT&T's purchase of Time Warner in a matter of weeks.
At this point, it seems, things could go either way. The Justice Department is still talking to the companies involved, as well as outside parties, to try to understand how the deal could affect competition. If the agency concludes the deal is no good in any fashion, it could file a lawsuit to try to block the acquisition. But the transaction could also still be approved, possibly in a modified form. The question of what the final version looks like is where it gets interesting. And a key variable in the outcome will likely be CNN, the cable channel that President Trump frequently criticizes.
The AT&T/Time Warner deal is a massive one. Worth more than $85 billion, the transaction could reshape the whole entertainment landscape. Time Warner, after all, is home to dozens of big-name franchises and properties — including HBO, TNT, TBS, Warner Bros. and more.
With Time Warner in its portfolio, AT&T could end up marrying a huge new library of content with its traditional expertise in delivering bits and bytes to smartphones, computers and TVs. AT&T already bought up DirecTV in 2015, and is aggressively bundling the satellite video product with its wireless service. The implications of an even bigger AT&T has competition experts wondering whether the federal government might try to block the deal.
"When the DOJ reviews any transaction, it is common and expected for both sides to prepare for all possible scenarios," AT&T said in a statement Thursday. "For over 40 years, vertical mergers like this one have always been approved because they benefit consumers without removing any competitors from the market." Time Warner declined to comment.
A vertical merger is one where a company in one industry — say, cellphone service — buys up a company in an adjacent industry, such as TV or media. A horizontal merger is one where two companies in the same industry join together. Typically, the Justice Department takes a more skeptical eye toward horizontal deals because of the clear competitive harms that might result from one firm gobbling up a direct rival.
Regulators have been known to approve even potentially anticompetitive deals if the companies agree to make certain compromises. By agreeing to a list of conditions, companies that are looking to merge can assuage the government's anxieties about the possible effects of a deal.
In the case of AT&T and Time Warner, regulators could seek conditions that ensure, for example, that Time Warner's content will still be readily accessible to other TV providers on reasonable terms. Smaller companies in the industry have been lobbying for such a provision.
But there's also reason to be skeptical about these types of compromises, which are known as behavioral conditions. When Comcast acquired NBCUniversal in 2011, the government imposed dozens of behavioral conditions on the combined firm. Consumer groups and other critics later argued that the conditions basically didn't work, alleging that Comcast violated the terms of the agreement in various ways. We won't rehash the debate here; suffice it to say that analysts don't necessarily agree whether behavioral remedies are actually effective.
What's more, even other regulators — particularly at the Justice Department — argue that behavioral remedies are a relatively intrusive regulatory tool, and that the government should use more limited forms of intervention when it can. One proponent of this idea? Makan Delrahim, the man who is now leading the Justice Department's antitrust division.
In a speech last week at New York University, Delrahim made a passionate argument for limited federal intervention in competitive marketplaces. In plain English, don't try to fix what isn't broken.
"Antitrust employs law enforcement principles to maximize economic liberty subject to minimal government imposition," he said. The Justice Department declined to comment for this story.
Delrahim's wariness of behavioral remedies, analysts say, is consistent with mainstream thinking at his agency.
"He legitimately prefers a structural fix, as would most antitrust enforcers," said Gene Kimmelman, a former Justice Department antitrust official who now heads Public Knowledge, a consumer advocacy group.
In antitrust law, "structural fixes" are a different type of merger condition from behavioral fixes. They essentially involve selling off parts of a business in order to satisfy regulators that the resulting firm won't be too dominant.
This is where CNN comes back into play. If Delrahim pushes for spinning off pieces of the combined AT&T/Time Warner, it could include President Trump's favorite media punching bag, according to some antitrust experts. Trump has complained about CNN's coverage of him in the past, and on the campaign trail, criticized the AT&T/Time Warner deal as an example of consolidation that put "too much concentration of power in the hands of too few."
— Hal Singer (@HalSinger) November 2, 2017
Trump's rhetoric has raised questions about the independence of Delrahim, who was a strong Trump supporter during the campaign. In Washington, Delrahim enjoys a solid reputation as a fair-minded professional, so few expect him to be swayed by the White House on AT&T/Time Warner.
"You're going to see stability in merger policy," said Joshua Wright, executive director of the Global Antitrust Institute at George Mason University and a former commissioner at the Federal Trade Commission.
But Delrahim's preference for structural remedies over behavioral ones could still lead to CNN (or other properties) winding up on the cutting room floor.
That outcome may allow everyone to walk away with a piece of what they want. In this scenario, AT&T might still be allowed to buy Time Warner (or what's left of it). The Justice Department will have stuck to its principles and fulfilled Delrahim's self-described mission. And Trump could brag about CNN not winding up in AT&T's hands.