AT&T’s Time Warner takeover faces lawsuit

US telecoms giant AT&T’s proposed US$85bn acquisition of HBO’s owner Time Warner is in turmoil after the US Department of Justice (DoJ) filed a lawsuit to block the takeover.

Randall Stephenson

The DoJ, which has been investigating the deal after it first emerged a year ago, said it would reduce competition and result in an increase in prices for consumers.

It argued that the telco would “use its control of Time Warner’s popular programming as a weapon to harm competition.”

Makan Delrahim, assistant attorney general at the DoJ’s antitrust division, said the deal would “mean higher monthly television bills and fewer of the new, emerging innovative options that consumers are beginning to enjoy.”

Delrahim added that a combined AT&T and Time Warner would also impact on emerging OTT services and allow the telco giant to ramp up prices on rival cable operators.

AT&T’s CEO Randall Stephenson said his company would fight the lawsuit and added that potential political influence from President Trump was the “elephant in the room.”

During Trump’s campaign for the White House last year he said the deal would not be approved if he was voted in as it would concentrate too much power in too few hands. He has also been a critic of Time Warner news operation CNN.

Stephenson, who said he had thought the deal was likely to proceed “until recently,” has previously been against Time Warner-owned Turner selling CNN to push the deal through.

“There’s been a lot of reporting and speculation whether this is all about CNN. And frankly I don’t know. Nobody should be surprised the question keeps coming up.”

AT&T, which insisted prices would not rise, added that the lawsuit action was “a radical and inexplicable departure from decades of antitrust precedent.”

David McAtee, AT&T’s general counsel, added: “Vertical mergers like this one are routinely approved because they benefit consumers without removing any competitor from the market. We see no legitimate reason for our merger to be treated differently.”

The deal, which the DoJ said had not been influenced by politics, will now face another series of hurdles in the courts around US competition law if it is to progress.

US regulations involving two companies that do not directly compete have been rare in the past.

When Comcast revealed it wanted to buy NBCUniversal (NBCU) in 2009, a variety of stipulations were applied to ensure competition rules were adhered to.

Similar conditions could be applied to this deal too, reports suggest, to ensure AT&T deals for networks such as CNN and TNT would be available to other cable operators.

The proposed takeover is part of a growing trend for telecoms firms to get into the content business.

In April last year, Comcast acquired DreamWorks Animation (DWA) for US$3.8bn. In the same month, US telecoms giant Verizon took a 24.5% stake in DWA’s online youth network AwesomenessTV, valuing the latter at US$650m.

US analysts have added that the challenges faced by AT&T could also impact Rupert Murdoch’s bid to sell off parts of 21st Century Fox.

Earlier this month, Verizon and Comcast were said to have joined Disney on the list of potential buyers of Fox’s film studio and television assets, with Sony joining earlier this week.