The federal government on Monday challenged a judicial decision allowing AT&T to purchase Time Warner, arguing to a federal appeals court in Washington that the ruling suffered from “faulty logic” and ignored basic economic principles.
Calling the lower-court decision a “deeply flawed assessment of the government’s evidence,” the Justice Department asserted that the U.S. District Court for the District of Columbia misunderstood the power dynamics at work when television distributors such as AT&T negotiate with TV programmers over content prices and terms.
The filing marks the government’s most comprehensive articulation yet of its appeal of the ruling that gave the go-ahead to the $85 billion megamerger, which closed in June and gave AT&T control over CNN, TBS, TNT and HBO, among other media properties. AT&T said it needed the deal to compete with tech companies such as Facebook and Google. Meanwhile, regulators had said the deal would indirectly lead to higher prices for consumers when AT&T used its control over Time Warner to demand higher content prices from rival TV services.
The Justice Department’s brief on Monday said Judge Richard J. Leon had gotten the case wrong when he determined AT&T was not likely to yank CNN, TBS and its sister channels off the air as a punishment against competitors that refused to pay higher prices. That is beside the point, government regulators said.
“It is fundamental to the economics of bargaining that a party derives leverage from having the ability to walk away, even if it never actually does so,” the Justice Department wrote.
That leverage, regulators had said, would give AT&T an advantage in future negotiations with TV distributors whose customers demand Time Warner content.
The Justice Department also said Monday that Leon had unreasonably discounted the testimony of AT&T’s rivals as merely the statements of self-interested competitors.
But if the merger is allowed to continue, the agency said, companies such as Dish Network or Charter Communications would not only be AT&T’s competitors. They would also become AT&T’s customers, as they sought to negotiate with Time Warner for its content.
Leon accepted AT&T’s arguments for the deal uncritically, the Justice Department said, making his analysis an “inconsistent” reading of the evidence.
AT&T said Monday that it saw nothing in the government’s brief that warranted overturning Leon’s decision.
“Appeals aren’t ‘do-overs,'” said AT&T General Counsel David McAtee in a statement. “After a long trial, Judge Leon weighed the evidence and rendered a comprehensive 172-page decision that systematically exposed each of the many holes in the Government’s case."